The CFPB and You

Dealers are correctly concerned about the Consumer Financial Protection Bureau. Formed in reaction to the most recent financial downturn, the Bureau gives consumer advocates license to pursue many restrictions on financial businesses they have eyed for years. The CFPB is insulated from Congressional oversight, and it is using its unprecedented powers to remake much of the U.S. financial landscape.CFPB_2tone_Horiz_RGB

Dealers have heard that they are exempt from the CFPB’s intrusive actions, but many are not sure what that means. Dealers are concerned over the CFPB’s ability to affect the way they do business and serve customers. The Q & A below should answer some of the questions raised by dealers regarding the CFPB’s authority.

Question: I am a franchised car dealer. Am I subject to CFPB jurisdiction?

Answer: Traditional franchised new and used vehicle dealers are probably exempt from oversight by the CFPB. Dealers that are predominantly engaged in the sale, lease and servicing of motor vehicles, and who routinely assign RISCs to third party finance companies, are excluded from the CFPB authority.

Question: Why did you qualify the last answer to say I am ‘probably’ exempt?

Answer: A dealer may find itself subject to the authority of the CFPB in three ways: (1) if you have a buy here pay here operation; (2) if you have their own finance company, and you do not routinely assign your RISCs to an unrelated finance source, or (3) if you have no service department (mainly used car dealers).

Question: As a car dealer, if I am subject to CFPB jurisdiction, does that mean I have to put in place all mandated CFPB programs and file reports with the CFPB?

Answer: No. There are two levels of CFPB authority – supervisory and enforcement. Companies subject to the supervisory authority of the CFPB have several obligations ranging from intrusive and time-consuming reports to the agency to mandated programs that must be in place. Being under CFPB supervisory authority is very expensive. Companies only under the enforcement authority of the CFPB escape this level of intrusion, but they still face potential civil suits by the CFPB for violations of “federal consumer financial law” if the company is a “covered person”. A dealer involved in the activities that can bring it under the jurisdiction of the CFPB can be a “covered person”.

Question: What kind of companies are under the supervisory and enforcement authority of the CFPB?

Answer: The FTC supervisory authority originally was over the large banks, generally considered the “too big to fail” banks. Recently, the CFPB proposed a rule to include larger financial entities under its supervisory jurisdiction, many of which are captive finance companies of the auto makers.

Question: What should I do if I have a buy here pay here operation or my own finance operation?

Answer: Remember the definition of a “covered person” that will bring a motor vehicle dealer under CFPB authority. The motor vehicle dealer exclusion of the CFPB authority does not apply if the extension of credit is provided directly to consumers and the RISCs are not routinely assigned to unaffiliated third party finance or leasing sources. Affiliate is defined by the CFPB as “any person that controls, is controlled by, or is under common control with another person.” The key is the term “routinely assigned.” The best practice is for a dealer to have a separate entity for any buy here pay here operation and for its finance operation which only occasionally accepts assignment of RISCs from affiliated dealerships.

Question: If my dealership is exempt from CFPB authority, how can it affect me?

Answer: It can push down its policies through the finance sources that are under CFPB jurisdiction. Just look at what the CFPB is trying to do to finance reserve by pressuring finance sources. A finance source will not accept assignment unless the RISC complies with the law. The finance sources are working on behalf of the CFPB as they police themselves to avoid legal action. The same can happen with pre-dispute arbitration provisions which the CFPB is required to consider as well as sales of F & I products that the CFPB has threatened to consider soon.

Question: If my dealership is not subject to CFPB authority, is it subject to Federal Trade Commission authority?

Answer: Yes. The law excluding automobile dealers that lease, sell, and service motor vehicles from CFPB authority enhanced the authority and provided a larger budget to the FTC to enforce the FTC act against car dealers. This authority that has led to several recent consent orders involving dealer advertising practices and other investigations.

Question: I got a form from the CFPB to register for its complaint handling website. Why did I get this?

Answer:   Since a traditional new car dealer is not subject to CFPB enforcement or supervisory authority, you may have received it because you may have a buy here pay here operation or you have a finance company. The CFPB has a Consumer Complaint Database which allows consumers to submit complaints directly to its website under the “Submit a Complaint” tab. The CFPB forwards the complaints to the subject company and works to get a response from it. The database is also used to share the complaint data with state and federal agencies, analyze complaint data to help with the CFPB’s work to supervise companies and enforcement of financial laws, and to publish complaints on the Consumer Complaint Database. Consumers can read complaints by other consumers (with personal information removed) on the Consumer Complaint Database. This open database has been heavily criticized by the industry. As constituted, it allows consumers to file any allegations with no vetting. The apparent purpose of registration in allowing industry participants to access the bulletin board to answer or provide their own position about allegations that may be posted. No one knows as well as car dealers how damaging false charges can be, even with the opportunity to answer with the unvarnished truth.