Don’t Let CFPB Fumbles Affect Your Compliance Efforts

The Consumer Financial Protection Bureau has had its wings trimmed, but don’t allow that to reduce your emphasis on compliance. The Federal Trade Commission is the cop on the beat for auto dealers, and it shows no sign of slowing

The CFPB has been buffeted by Trump headwinds. There have been several recent challenges.

  • Congress voted to disapprove the CFPB regulation on arbitration, effectively killing the initiative authorized by the Dodd-Frank financial reform legislation.
  • The CFPB says it will issue “requests for information” on the Bureau’s activities and how those activities affect consumer financial institutions. Acting Director Mulvaney has noted that the responses could well lead to changes CFPB policies and procedures.
  • In an unheard of development in Washington, D.C., Acting Director Mulvaney stated that the Bureau will seek no budgetary dollars for the second quarter of 2018. Before his resignation, former Director Cordray said that the Bureau would need $217.1 million for its quarterly budget needs. Director Mulvaney noted that the CFPB has $177 million in reserves, it needs no reserves because the Federal Reserve Board has always provided the money the CFPB said it needs, and the existing balance is enough to cover the expected expenditures of $145 million for the quarter.

Do not consider these CFPB reverses to be a signal you can downplay your compliance efforts. A recent decision by the full D.C. Circuit reversed a prior D.C. Circuit panel decision that the structure of the CFPB is unconstitutional. The CFPB was constructed by Congress dominated at the time by the Democratic party to be impervious to oversight. Unless the Supreme Court reverses the latest D.C. Circuit Court decision, or Congress acts to restructure the CFPB (something it has shown little appetite for so far) the return of a zealous and vengeful CFPB is one presidential election away.

Since passage of the Dodd Frank financial reform legislation, the FTC has been the federal agency most important to motor vehicle dealers’ compliance efforts. Because franchised motor vehicle dealers were exempt from CFPB jurisdiction, Congress in the Dodd Frank legislation gave the FTC a bigger budget and more responsibility specifically on car dealers’ compliance. The FTC has not been shy about using those resources. It has launched numerous investigations leading to dozens of consent orders with dealerships. A dealership that finds itself in the FTC’s targets will be a loser no matter what it works out in a consent order. Simply going through negotiating a consent order will sap the time and energy of dealership staff, and any consent order will be in place at least ten years and will provide for regulatory oversight.

The FTC has lost none of its zeal to pursue advertising violations by car dealer groups. Recently, two related Dallas, Texas car dealers entered a consent order because of charges they deceptively advertised loan and lease terms in ads placed in a regional Spanish language newspaper. According to the FTC, the dealers ran full page Spanish language ads claiming attractive sale and lease terms in Spanish that were then contradicted in fine print disclaimers in English on the bottom of the ads. The FTC charged that these English disclaimers resulted in misrepresentations of the true costs of purchasing or leasing cars, qualifications or restrictions for financing or leasing, and the availability of cars in violation of the FTC act. As in almost all advertising violations charged by the FTC, there were charges that the ads used trigger terms but did not include required Truth in Lending Act and Consumer Leasing Act follow on disclosures.

The difficulties of a dealer consent order were just shown by a civil penalty action in federal court against a west coast dealership group. The dealerships had agreed to a consent order on advertising practices. The FTC then filed a civil penalty action claiming that the dealership disregarded the order’s requirements. The suit resulted in a settlement of $1.4 million, an agreement to be subject to more stringent monitoring for twenty years, and other enhanced enforcement requirements.

Absent a dramatic development, one day the CFPB will be back as a fearsome regulatory threat. However, the CFPB is not the primary concern of motor vehicle dealers. The FTC has enhanced authority and enhanced budget, and there is no indication the FTC will be backing away from its role as the federal agency charged with policing motor vehicle dealer activities.