Maybe you heard it spoken in a 20 group meeting or around the lunch table at the auction. There's one buy-here, pay-here operator telling another, "I'm not worried about the CFPB. I'm just a small guy with 20 cars on my lot and less than 1,000 active accounts. I'm sure those guys will go chase the big fish.”
For BHPH dealers who think that way, Rick Hackett offered a strong warning. The Consumer Financial Protection Bureau is intensifying its regulatory aim at this industry. And Hackett should know; he spent about two years at the CFPB before officially joining Hudson Cook in March.
“The bureau focuses on the risk of a product to consumers,” Hackett said during a panel discussion during the National Conference hosted by the National Alliance of Buy-Here, Pay-Here Dealers last month in Las Vegas.
“Buy-here, pay-here is viewed as a high risk product because it’s expensive and it’s given to folks whose financial lives are relatively volatile, and therefore, it’s a risky situation from the perspective of consumer outcomes,” continued Hackett, who formerly was the head of the Office of Installment and Liquidity Lending Markets in the Division of Research, Markets and Regulations at the CFPB. His responsibilities at the bureau included advising all of the regulator’s divisions with respect to market information and policy issues in the installment and specialty lending areas, including vehicle finance, student lending and payday lending.
Hackett acknowledged a small BHPH operator might have avoided significant CFPB scrutiny when the bureau first began to issue enforcement actions against large industry players such as Ally Financial and US Bank. Now, times are definitely changing.
“Two years ago, I would say you could stay of the radar by having a low profile and being small,” Hackett said. “Tat might have been true with the original activity at the bureau when it focused on the largest players in this space. Now, I’m pretty sure that’s not true anymore that being small will keep your radar profile down.”
A host of NABD Conference attendees all pondered the same question. What triggered this response at the CFPB?
“Complaints are really important to the CFPB, and service member complaints are 10 times more important,” Hackett said.
Hackett continued that point by sharing two other theories.
“What we’re seeing from CFPB consent decrees is they will typically look for a technical non-compliance point of leverage — a Truth in Lending mistake that happens every single time you made a contract — in order to then leverage the consenting party into agreeing that other things won’t happen anymore,” he said.
“Unless you’re talking with large companies that have to make a securities disclosure, it’s really hard to figure out exactly what’s going on out there,” Hackett continued. “I’ve talked to some lawyers who have seen (civil investigation demands) for small buy-here, pay-here dealers. That suggests to me that the initial process has changed and smaller companies are being looked at. My hypothesis is that these involve locations close to military bases or some other reason why there’s a crosshair of risky product in special populations.”
In the short-term, Hackett offered a recommendation.
“The more your technical compliance is buttoned up, the more likely it is that it will survive an investigation with very limited damage,” he said.
Editor’s Note: Future issues of BHPH Report will offer more analysis and guidance from industry experts so operators can enhance their compliance processes.