EFG commentary: Another turn of the screw by the CFPB


On July 10, the Consumer Financial Protection Bureau (CFPB) issued a rule banning companies from denying arbitration to groups of people. And, if everything passes, the law should go into effect in September. For auto retail dealers and lenders, this change is just one more turn of the screw clamping down on the ability to do business.

The new ruling stipulates that auto dealers and their lending partners will still be able to include arbitration clauses in their contracts. But those clauses may not be used to prevent consumers from joining a class action lawsuit. The rule specifies the language that must be used in the contract. Companies are also required to submit detailed information to the CFPB about claims and awards made in arbitration. That data eventually will be made public, with consumer names and identifying data removed. It’s no wonder dealers and lenders are feeling like Big Brother is looking over their shoulders.

Shaun Petersen, vice president of legal and government affairs with the National Independent Auto Dealers Association (NIADA) recently joined the EFG Companies Common Sense Compliance podcast and shared some thoughts on how this ruling might impact dealers in the future.

“While the original purpose of the CFPB was to ‘root out’ unfair, deceptive or abusive acts or practices, supervise companies, and enforce laws,” Petersen said, “the bureau has certainly had its eye on the automotive market. While there are certainly some bad actors, the majority of auto dealers and lenders are trying to help the consumer. This additional ruling complicates these efforts.”

“This rule will force small businesses to bear additional costs in defending class-action litigation, particularly meritless suits,” Petersen continued. “Those costs will ultimately be borne by consumers, and in the case of those who are credit-challenged, it could prove to be too much.”

Petersen outlined some of the steps the NIADA is taking to work with key members of Congress to oppose the ruling. “From the outset of this rulemaking process, NIADA has voiced concern about the poor policy reflected in this proposal to both the CFPB and to members of Congress,” Petersen said. “As Congress considers CFPB reform, we will be urging lawmakers to overturn this anti-consumer rule.”

In the meantime, Petersen encouraged dealers and lenders alike to review their contract language, as well as any other materials which discuss the consumer’s rights to contract arbitration.  “The ruling is scheduled to take effect Sept. 18,” Petersen elaborated. “While we continue to work with members of the House and Senate to oppose this ruling, we also don’t want dealers and lenders to be caught flat footed.”

Compliance is certainly a growing challenge for auto dealers and their lending partners. When entities such as the CFPB issue wide-ranging rulings, it’s no wonder that dealer principles, F&I teams and lenders throw up their hands in frustration. How can you manage the pressure from this latest turn of the compliance screw? Stick to your compliance checklist and leverage available resources from industry associations and providers. And turn the screw back toward your favor.

As vice president of compliance at EFG Companies, Steve Roennau utilizes his extensive industry experience to provide EFG clients a sophisticated analysis of their current compliance procedures and proactively prepare them for upcoming changes in federal and state regulations. Steve is an AFIP Senior Certified Professional in Financial Services, and has developed compliance training modules in the areas of adverse action, privacy rule, risk-based pricing/exception notice, red flag rule, safeguards rule, deceptive practices, and federal and state regulations. In addition, he has conducted several compliance courses, including compliance workshop for dealership managers; AFIP prep course for F&I producers; and, F&I compliance training for F&I producers. He can reached at [email protected]

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