If Benjamin Franklin worked in auto finance today, he might amend his famous quote about nothing being certain except death and taxes to include “and compliance.”
Creditors and auto lenders must adhere to a dizzying array of federal and state requirements designed to defend consumers against predatory business practices. Such mandates are on the rise, leaving many lenders aiming to navigate the intersection of quickly evolving technologies and growing demands for data privacy. Failure to demonstrate compliance can lead to public embarrassment and business-breaking penalties including massive fines, lawsuits and even jail time.
Auto lenders seeking to protect both their customers’ rights and their own portfolios should ready themselves in one area in particular: global positioning system (GPS)-enabled, vehicle-tracking technologies installed in subprime-financed vehicles. Millions of these vehicles are already on the road and more join them every day. While incredibly popular, these technology-assisted loan programs are also drawing increased scrutiny from federal and state governments and the public to ensure that lenders treat consumers responsibly.
To succeed in this environment, auto lenders developing or reviewing their compliance strategies need to know three things:
1. The current regulatory landscape and public perception of GPS-enabled vehicle-tracking technologies
2. What they need to do to ensure compliance
3. That the providers of the vehicle-tracking systems they use are qualified and reliable
GPS-enabled technologies have helped revolutionize auto financing by permitting lenders to offer loans to many drivers who otherwise would not qualify. Each side benefits: Dealers can more quickly locate and reacquire vehicles from delinquent loan recipients, and recipients in good standing get the mobility they need and the opportunity to improve their credit scores.
The spread of these systems has raised compliance-related issues. Auto lenders must therefore be scrupulous in complying with government rules on proper use of GPS data as part of non-discrimination and other consumer protection practices.
Not doing so can have dire consequences. Regulators hold the end user of the technology responsible for protecting consumers. That means if a vendor mishandles data or otherwise fails to uphold compliance requirements, the finance company is liable. Knowing the buck stops with you makes knowing your responsibilities – and ensuring your technology provider does, too – essential.
Auto finance organizations answer to many federal and state regulators, which dictate compliance rules and determine how auto lenders can use specific technologies, including GPS-enabled vehicle-tracking systems.
At the federal level, auto lenders must meet requirements from the Consumer Finance Protection Bureau (CFPB), created through the 2013 Dodd-Frank Act. Specific federal regulations that dealers must satisfy to avoid unfair, deceptive, and abusive acts and practices (UDAAPs) as defined in Dodd-Frank include:
● Equal Credit Opportunity Act (ECOA) Regulation B
● Fair Credit Reporting Act (FCRA) Regulation V
● Graham-Leach-Bliley Act (GLBA) Regulation P
● Truth in Lending Act Regulation Z
Dealers have to be aware of how international regulations such as the European Union General Data Protection Regulation (GDPR) could affect them as well.
Maintaining compliance at the state level can be even more complicated than at the federal level. For each state in which they operate, auto lenders should understand and ensure they comply with:
● State regulations on GPS and vehicle-tracking systems
● Uniform Commercial Code requirements
● Requirements for communicating with loan recipients about loan terms, the capabilities of the technology and how it will be used
● Requirements for disclosure and penalties for nondisclosure
Additionally, auto lenders should know the positions of relevant state consumer protection agencies and state attorneys general on GPS-enabled technology.
To achieve compliance at both the federal and state levels, auto lenders should:
● Ensure staff (both those installing the equipment and those using it) are sufficiently and regularly trained in the technology’s proper application
● Always disclose the presence of the technology in the vehicle, and clearly explain how and when it operates and the type(s) of data it collects
● Track and review complaints to identify potential risks to consumers or violations of law
Other best practices are available at resources including CFPB, the National Automobile Finance Association (NAF Association) and the National Independent Automobile Dealers Association (NIADA).
Choosing a provider
Dealerships need to trust that any technology provider they use — and especially those for GPS-enabled systems — understands current compliance requirements and can help customers more easily meet those requirements and mitigate risks. When shopping for systems, auto lenders should assess vendors’ preparation and transparency in answering key questions, including:
● What track record and product features do they offer related to compliance with federal and state regulations?
● How does the reliability, scalability and ease of use of their technology assist with compliance?
● How willing are they to work with customers on compliance audits and tracking and resolving complaints?
Armed with the right mindset and information, auto lenders can improve their ability to know a compliant solution when they see one and distinguish a good potential partner from a bad one. By doing so, you can focus on your core operations and boost customer confidence in your business, secure in the knowledge that you are protecting your customers and your portfolio from compliance-related risk.
Bill Caan is national sales manager for CalAmp, a telematics pioneer leading transformation in the connected vehicle and industrial internet of machines marketplace.