By Eric L. Johnson, Hudson Cook, LLP

 

The general consensus is that a Biden/Harris Administration will mean lots of change for automotive finance. But exactly what types of change and how quickly will that change occur? And just how bad for the industry will it be? If you were waxing nostalgic for an aggressive watchdog and that "regulation by enforcement" we lived through under former CFPB Director Richard Cordray during the Obama Administration, where the Bureau’s success was measured in terms of dollars recovered for the consumer and penalty amounts, you’re in luck!

Let’s start with change at the Consumer Financial Protection Bureau. The bureau’s latest director, Kathy Kraninger, resigned upon Biden’s inauguration on Jan. 20. As President-elect on Jan. 18, Biden announced several appointments, including FTC Commissioner Rohit Chopra to head the CFPB. We should see a gradual move by the Bureau to take a more aggressive stance toward consumer protections; especially given the economic and other effects of Covid-19.

You can expect a renewed focus on fair lending practices in the industry, particularly as it relates to race. We should expect to see more cooperation with state attorneys general and state regulators on these issues.

In an April 2020 letter to Kraninger, Cordray proposed helping avoid vehicle repossessions by working with Congress to impose a moratorium on auto repossessions "for the duration of the crisis and its economic aftermath." In addition, he recommended taking "steps to ensure that consumers facing repossession of their vehicles are informed, treated fairly and have the remaining equity in their car or truck fully applied to the balance of their loan."

He also called for supervision staff to require brief summary reports to monitor industry performance on a biweekly basis — on issues such as call volume, hold times, accounts place in forbearance, accounts missing a payment and other items that may be useful to assess the status of the economic crisis affecting consumers. And, he called for this anonymized data to be made public claiming that "This will help identify the best practices the industry is developing to address the growing economic crisis. The CFPB’s market-monitoring teams were designed for precisely this purpose." Expect a ton more scrutiny by the CFPB on your servicing and collections activities.

 

What about changes at the Federal Trade Commission? You may know that the Commission is headed by five Commissioners, nominated by the President and confirmed by the Senate, each serving a seven-year term. No more than three Commissioners can be of the same political party. The President chooses one Commissioner to act as Chairman. The makeup of the Commission currently is three Republications to one Democrat, and a successor is needed for Chopra (D). Commissioner Rebecca Kelly Slaughter (D)’s term expires September 2022. The Republicans’ terms expire in 2023, 2024 and 2025.

 

All of the Commissioners were appointed at roughly the same time and there will be a period of at least 2 years (barring more resignations) with a Republican majority. Commissioners can only be removed for cause. President Biden can appoint a new Chairman of the Commission; probably a Democrat.

 

I doubt we’ll see a lot of change at the FTC on consumer protection matters, at least not initially. The FTC has certainly taken a more aggressive enforcement posture the past few years and I expect that posture to continue. You may remember that two of the Commissioners issued concurring statements in the Bronx Honda settlement, calling for the FTC to employ its rulemaking authority to combat abuses by auto dealerships. They concluded that an enforcement strategy, by itself, is insufficient. We may very well see some rulemaking authority to combat those perceived abuses by dealers.

 

What about the FTC’s Bureau of Consumer Protection and its current Director? You may remember that this is the Bureau responsible for protecting consumers against unfair, deceptive or fraudulent practices. The current Director has been very effective, but under a Biden/Harris Administration he and other FTC staff may decide to head for greener pastures. If that happens, you can bet your bottom dollar you’ll see more liberal leadership and staff in that Bureau. I expect we’ll see a continuation, and possibly increased focus, by the FTC on dealer safeguards policies, privacy policies and identity theft prevention policies.

 

Finally, there’s the Department of Justice. As I noted above, I expect we’ll see a renewed emphasis on fair lending and racial equity and justice by the DoJ. Biden’s choice to take over as attorney general is Merrick Garland, who is undergoing Senate confirmation. We could see more investigations by the DOJ, leading to more enforcement actions and settlements with dealers and their principals for alleged criminal activity.

 

If you’ve spent the past four years being lax in your compliance efforts, it’s not too late to act. What can you do? If you don’t have one, get a Compliance Management System in place. If you do have a CMS, make sure it’s updated, taking into account the Bureau’s CMS findings for other companies they’ve enforced against or examined and ensure it tracks your actual policies and practices. Review and update, if needed, your Safeguards and Identity Theft Prevention Policy (Red Flags policy). Finally, if you’re a dealer and you haven’t adopted the NADA’s Fair Credit Compliance Program and Voluntary Protection Products Policy, you need to look at doing so. A call to your friendly compliance counsel would be a great start!