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What to expect from regulators in 2016

February 26, 2016
There could be new curves for dealers to navigate this year on the regulatory road, a path that can sometimes wind and change course with little notice.
Some of those twists in 2016, said Randy Henrick of Dealertrack Technologies, may involve ramped up regulation of dealership aftermarket products, continued focus on deceptive advertising, and increased pressure from state attorneys general — a group dealers are more likely to hear from than federal agencies.
During a webinar last month, Henrick outlined regulatory enforcement by various agencies, looking back on their activities from the past year while also forecasting what may be on their respective radars this year.
About 20 minutes into the webinar, after recapping the 2015 actions from a couple of agencies and giving dealers some compliance tips, Henrick turned to what he called the "good news portion of our program."
Believe it or not, that news was about the Consumer Financial Protection Bureau.
"We are winning the war on indirect auto dealer disparate impact credit discrimination, and rate participation is not going to go away," Henrick said. "I’ve been saying that for two years, and it’s true."
The CFPB, he said, had a rough 2015. And the start to 2016 wasn’t much better.
In fact, on the day of the Jan. 20 webinar, the U.S. House of Representatives reported there were CFPB documents indicating that the number of people in protected classes was overestimated in a 2014 settlement the bureau made with Ally Financial.
Henrick also referenced House Resolution 1737 — the Reforming CFPB Indirect Auto Financing Guidance Act — that was passed by the House of Representatives in November.
"The House of Representatives voted on a bipartisan basis, 332-96 — When have they ever voted in that number before? — to repeal that 2013 auto finance guidance that claimed dealer rate participation was credit discrimination," he said.
"I am told they have approximately 60 votes in the Senate," Henrick said. "It’ll get passed in the Senate; it’ll go to President Obama’s desk. He’ll probably veto it, but it sends a message to the CFPB." The legislation currently is before the Senate Committee on Banking, Housing, and Urban Affairs.
He also pointed out that the CFPB "backed down from the 2013 guidance" in both of its consent decrees from 2015.  The guidance, Henrick explained, had said flat fees were the only way to halt credit discrimination.
"Both of those consent decrees allowed for dealer rate participation," he said. "Now, they’ve limited it to 125 basis points on contracts up to 60 months, and 100 basis points on longer contracts. Now the door is open; it doesn’t have to be just flat."
The CFPB also has "backed down" on not allowing for a legitimate business justification for lowering a rate, Henrick said. This lets dealers go below a finance company’s buy rate for competitive reasons. 
However, bear this in mind: As of this past summer, the CFPB gained regulatory oversight of 34 finance companies, where previously their oversight was only banks with assets of more than $10 billion, Henrick said.
"So, they’re going to go after these finance companies, which are going to play along like the banks did, even though they know this is all nonsense," he said. "And you’re going to be hearing from these finance companies wanting audits, wanting information."
Additionally, the CFPB said in 2015 that it planned to issue a rule that would ban waivers of class actions in the arbitration clauses of vehicle installment contracts.
 "They are going to issue rules in early 2016 under the Administrative Procedure Act, which comments on the rules. The final rule will get put out some time in 2017," Henrick said.
Though he acknowledges this would be "down the turnpike a little," Henrick said this move is on the way and would be a "major blow" to not have waivers of class action in arbitration clauses.
What’s next for CFPB?
Well, given the profit dealers can make from aftermarket products, Henrick said, that is likely the bureau’s next target.
The CFPB will likely "try to impute bad contact by dealers in selling aftermarket products (from) lenders and try the disparate impact theory that way," he said. "Try and get you on an aftermarket product
"They’ve already done some of this in other consumer products," Henrick said. "Here’s the ones they particularly don’t like: credit repair, identity protection, payment packing of credit insurance and service contracts. These are the ones they’ve most targeted."
Additional predictions from Henrick were:
• Look for DOC fee litigation to increase this year in states without established doc fee limits.
• The CFPB is likely to up its game on reporting to credit bureaus and debt collection. Even though many dealers may not work in those areas, they are likely to be "hot areas" for the CFPB and FTC, he said.
• FTC will continue to go after deceptive advertising.
• Watch out for hackers and similar criminal entities that are likely to target dealers to get consumer data. "Data security has never been a bigger problem … this would be a good time to look at your data security program."
• CFPB will likely tone down its efforts to remedy disparate impact. However, it will turn to aftermarket products and unfair/deceptive sales.
• State attorneys will target advertising shortfalls on both a federal and state level, with the dollar figures they pursue only increasing.