Another federal judge calls CFPB unconstitutional

CARY, N.C. - 

In a case unrelated to auto finance, a ruling by a New York federal judge released this week found the Consumer Financial Protection Bureau to be unconstitutionally structured; an action that disagreed with the D.C. Circuit Court of Appeals stating to the contrary from earlier this year.

Hudson Cook partner Lucy Morris looked to explain potential ramifications triggered by U.S. District Judge Loretta Preska in a New York case involving a company allegedly scamming first responders injured during the Sept. 11 attacks. Prior to joining Hudson Cook, Morris served as a deputy enforcement director at the CFPB and served as a founding member of the CFPB implementation team that organized the bureau after passage of the Dodd-Frank Act.

In a 108-page document that , Preska described the CFPB as unconstitutional seven different times. Her assessment disagrees with the en banc review by the D.C. Circuit Court of Appeals that surfaced back in January when the majority opinion declared that the CFPB structure can stand.

So how should the industry react to what came out of a Manhattan federal court this week?

“The court’s opinion is long and dense when it comes to the underlying merits, but short and succinct on the constitutional issue — according to the court, the bureau’s structure is unconstitutional, and there’s no way for a court to fix it,” Morris said in an assessment delivered to SubPrime Auto Finance News.

“If the court is correct, then it calls into question not just this single enforcement action, but everything the bureau has done since its inception, whether by (Richard) Cordray or (Mick) Mulvaney,” she continued. “While this is only one federal district court opinion — and contrary to other courts’ rulings on the bureau’s structure — I expect it will create more litigation against the bureau and add more uncertainty for industry and consumers alike.  

“For this reason, the ruling may be the catalyst for Congress to pass legislation making the bureau a bipartisan commission, fixing any constitutional flaw in its current structure,” Morris went on to say.

Having a commission is a move that’s been suggested many times by both the American Bankers Association as well as the Consumer Bankers Association.

ABA president and chief executive officer Rob Nichols said the organization is still reviewing the ruling from the federal district court in New York.

“Other federal courts have ruled differently, so the implications of this decision remain unclear,” Nichols said.

“ABA has long believed that the bureau should be more accountable to Congress and that a five-member, bipartisan commission — as originally envisioned in drafts of the Dodd-Frank Act — would balance the bureau’s needs for independence and accountability, while broadening perspectives on rulemaking and enforcement. Today’s ruling does not alter that view,” Nichols went on to say.

Earlier this month, CBA president and CEO Richard Hunt testified before the U.S. House Financial Institutions and Consumer Credit Subcommittee on ways to improve transparency and accountability at the CFPB.

“Improving the financial lives of consumers is a goal that unites lawmakers, regulators and industry,” Hunt told lawmakers. There are many changes that can be made to enhance the functioning of the bureau and increase access to credit for consumers, but improving the governance structure at the bureau underpins them all. A bipartisan commission at the bureau will depoliticize it, bring long-term stability, and benefit consumers and small businesses.

“When Congress created the bureau, it was granted jurisdiction over more than 11,000 banks and credit unions as well as countless non-depository institutions. All of that power was given to a single director,” he continued. “It also means the next director has the sole authority to undo every one of those actions — like a political pendulum, swinging with each new administration.”

“As Congress contemplates changes to the bureau, any meaningful discussion should start with the bureau’s leadership structure,” he added.

COMMENTARY: Considering all-in-one pricing for repossession services


During the past 12 to 18 months, there has been a real increase in interest by lenders around the idea of establishing “all-in-one pricing” (AiO) with their repossession forwarders. Most of this interest has been spurred by concerns expressed by the Consumer Financial Protection Bureau regarding ancillary fees as well as a desire by lenders to simplify the invoicing/payment process.

AiO can, indeed, offer benefits in these areas. However, as many lenders have come to understand, it must be approached very carefully and requires fairly deep analytics to gain a clear view of where the pricing should fall.  While many lenders have been examining the strategy, at this point, very few have adopted it as they have come to realize they simply don’t have the data points necessary to gain a solid understanding.

The remainder of this article will examine the key issues surrounding AiO pricing with the aim of giving you a better understanding of the dynamics that come into play.

What Is AiO pricing?

Perhaps the answer is obvious, but we have found that different lenders do have different views. In its purest form, AiO pricing is a single flat fee that covers the cost of the repossession and all ancillary services that might come into play to complete the processes required by the specific case.  This may include:

• Key cutting
• Personal property
• Storage
• Redemption
• Use of flatbeds
• Transportation to auction

It would be great if the full cost of these services could just be added to the cost of every repossession. However, since all, some or none of these services may come into a play on a given case, simply adding the full fee to each obviously would result in an AiO fee that would be ridiculously high.

So, the challenge lies in understanding the utilization factors relating to the various ancillary services possibilities. Unfortunately, the utilization factors can vary tremendously from portfolio to portfolio and, therefore, detailed analytics are required to come up with a fee that makes sense for both your customer and your vendor partner.

Let’s take a look at some of these variables and how they can impact the pricing model.

Key cutting

As we all know, sometimes a key is obtained when a car is recovered and many times one is not. To determine a key cost factor that can be applied to every repossession, you have to make an assumption about what percent of recoveries will require a key. This is data that we are able to track in our proprietary database and I can tell you we see a wide variation, ranging from 2 to 3 percent to as much as 10 percent where keys have been provided.

Another very significant factor is the mix of the types of keys required. Again, it can be very portfolio specific. For instance, we have one large captive lender client that was an early leader in the deployment of proximity keys which are very expensive. The average key cost is off the chart. Conversely, we have title lending clients where exactly the opposite is true. 

The chart below summarizes the impact both can have on the AiO price.

  Captive Lender Title Lender
 Percent of Vehicles Keys Must Be Cut  10%   10%
 Average Key Cost (based on mix)  $235   $144
 AiO Cost Factor  $24  $13


Your institutions’ policy regarding keys can also have a major impact. Some lenders want operational keys available on all cars prior to transport. Others only want keys cut if required to access the vehicle for personal property determination.  Several considerations, and we have only covered keys!

Redemption fees

Pricing for the costs related to the redemption of the vehicle by the customer is one of the trickiest aspect of AiO pricing. 

The first hurdle is to understand the average redemption rate on the portfolio. To predict the variable with any confidence/accuracy, one must have at least six (preferably 12) months of history tracking the issue. Not only do redemption rates vary significantly by lender, but they also vary significantly by portfolio within the lender.

For instance, a post charge off skip portfolio will have a much lower redemption rate than a first placement pre-charge off portfolio.

To put the issue in context, we have one lender whose first placement business redeems at a 24-percent rate and another that redeems at a 42-percent rate. Assuming that the agent will be limited to a maximum total fee of $150 per actual redemption, the impact on the AiO rate would be:

AiO Cost Factor
Port A (42%)  Port B (24%)
 $63   $36


The other very important component of the redemption related costs is the amount the agents are allowed to charge the lender in redemption situations.  Any redemption has a potential combination of personal property, administrative and storage related cost that the agent does expect to invoice.  Historically, these costs have varied by region and even by agents operating in the same region.  However, for an AiO approach to work, these fees must be standardized across all forwarders/agents. 

The approach to doing so is all over the board. We will leave that for another article.

Personal property — no redemption

In many cases, a car is not redeemed but the customer does want to retrieve personal property. Due to CFPB concerns, most lenders do not want the agent collecting any personal property related fees from the customer. However, it properly accounts for these fees in the AiO model, one must make assumptions on what percent of recovered vehicles will involve retrieval of personal property. 

Again, it varies meaningfully by portfolio.


Excess storage fees must also be accounted for in the model. Most repossession come with a certain amount of free storage, but what happens when that is exceeded?  The AiO model must anticipate that possibility and assign a cost for it.  Again, that can vary significantly by portfolio.  We work with one lender that generally moves cars off the lot to transport within four to five days and another that averages almost 20 days.

Clearly the AiO pricing model has many moving parts.  If you want the right price and you want to feel confident that your vendors will be able to live with that price for a reasonable period of time, you will need to be able to provide very solid data on your portfolio.

Final thoughts

If you are unable to do so, our recommendation is to have a very transparent process with your vendors in which all assumptions are provided along with the resulting pricing model. With that in place, all parties can monitor the actual performance and agree to make adjustments accordingly.

Mike Levison is the chief executive officer of ALS Resolvion. More details about the company can be found at .

14 AGs push back to keep CFPB complaint database publicly available


As the Consumer Financial Protection Bureau continues to modify how it operates, more than a dozen state attorneys general are pushing the CFPB not to change its practices regarding consumer complaints.

New York attorney general Barbara Underwood recently led a coalition of 14 attorneys general in urging the CFPB to retain its public database of consumer complaints. Underwood explained the joint letter emphasizes the numerous benefits of a public database to state law enforcement, honest businesses and the public at large. 

Underwood noted the letter was in response to a March 1 request for information (RFI) issued by the CFPB, seeking comments from the public “to assist the bureau in assessing potential changes that can be implemented to the Bureau’s public reporting practices of consumer complaint information.” 

Underwood said, “The CFPB public database represents an admirable commitment to transparency.  By moving to eliminate public access to the database, the Trump administration is yet again putting corporate interests over those of consumers, shielding corporate wrongdoing from public view.”

The letter was led by Underwood and also signed by the attorneys general of:

— California
— Delaware
— Hawaii
— Illinois
— Iowa
— Maryland
— Massachusetts
— Minnesota
— North Carolina
— Oregon
— Pennsylvania
— Vermont
— Washington

The letter also was signed by the Hawaii Office of Consumer Protection.

The attorney general actions arrived on the heels of the CFPB disbanding its Consumer Advisory Board; a move that members called a “firing.”

Along with the RFI Underwood referenced, the bureau also issued another Request for Information on its handling of consumer complaints and inquiries in April. The bureau is seeking comments and information from interested parties to assist the CFPB in assessing its handling of consumer complaints and consumer inquiries and, consistent with law, considering whether changes to its processes would be appropriate.

As of April, the bureau said it has received 1.5 million consumer complaints.

“Though the bureau is required to establish reasonable procedures to provide timely responses to consumer complaints and consumer inquiries, certain aspects of the complaint and inquiry handling processes were developed in furtherance of those statutory requirements but are not directly mandated by statute,” officials said in the April RFI.

“Mindful of the bureau’s statutory objective to provide consumers with timely and understandable information about consumer financial products and services so they can make responsible decisions, as well as its statutory obligations to establish reasonable procedures to provide consumers with timely responses and centralize the collection of consumer complaints about consumer financial products or services, the bureau has used back from a variety of stakeholders to establish and refine its processes over time to improve stakeholders’ experience, handle large volumes of complaints and inquiries and increase overall efficiency,” officials went on to say.

Since the complaint database went live on June 19, 2012, Underwood’s office reiterated that more than a million consumers have filed complaints, and 97 percent of these consumers received a response from the company that was the subject of their complaint. 

In the joint letter, the attorneys general underscore that:

• The large number of complaints and functionality of the database — which can allow users to narrow searches by company, state, product, etc. — have enabled their offices to identify patterns of widespread misconduct that have led to investigations into debt collection companies, student loan servicers, for-profit universities, and other companies whose misconduct was initially brought to our attention through a critical mass of complaints filed with the CFPB. 

• The database arms consumers with information so they can make informed decisions and avoid bad actors in the marketplace. 

• The database benefits responsible companies because it allows them to better understand their customers, and provides them the opportunity to identify problems and take corrective action. 

While auto financing wasn’t specifically mentioned, the bureau is still sharing some details about the complaints it’s receiving. The latest complaint snapshot offered by the CFPB just after Memorial Day focused primarily on debt collection.

Since July 2011, the bureau said it has received approximately 400,500 debt collection complaints, which is 27 percent of the total complaints the agency has received.

“Some common themes emerged in our analysis of these complaints,” the CFPB said. “For example, some people reported that there were debts on their consumer credit reports, but that they did not have prior written notice of the existence of the debt.

“Some people stated in their complaints that they felt uncomfortable disclosing personal information to people who called asking for it because they were not sure whether the person calling was a legitimate debt collector,” the bureau continued. “People also complained about the communication tactics companies used when attempting to collect a debt.”

The CFPB added that credit or consumer reporting was the most-complained-about financial product or service category in March as 37 percent of the approximately 30,300 complaints received during that month revolved around credit or consumer reporting.

Debt collection was the second most-complained-about consumer product, accounting for 27 percent of the monthly total.

The third most-complained-about financial product or service was mortgages, representing about 10 percent of complaints.

The CFPB’s public complaint database was created as part of a lengthy, thorough, and thoughtful process in which the CFPB solicited and considered the views of all stakeholders, including industry groups.  Moreover, as set forth in the letter, a public database of consumer complaints is consistent with the CFPB’s statutory mandate contained in the Dodd-Frank Wall Street Reform and Consumer Protection Act, which charged the CFPB with, among other things, collecting consumer complaints, publishing information relevant to consumer financial products and services, providing consumers with information needed to make informed financial decisions, and ensuring transparency in the consumer financial products and services market. 

Getting back to the action led by Underwood, her office pointed out that the 14 attorneys general who submitted the letter collectively represent more than 131 million Americans, or 40 percent of the U.S. population. 

According to a news release distributed by Underwood’s office, “The attorneys general expressed concern that the CFPB carefully consider facts and arguments in favor of continuing the public database, particularly in light of press reports indicating that acting director (Mick) Mulvaney may have already made up his mind to eliminate the database. In a recent speech to the American Bankers Association, acting director Mulvaney suggested that the decision to shut down the database was a foregone conclusion.”

CFPB disbands Consumer Advisory Board


An official from the Consumer Financial Protection Bureau described this week’s moves as “transforming the way we engage.” Meanwhile, members of bureau’s Consumer Advisory Board called it a “firing.”

The contrasting views about this segment of the regulator surfaced through a CFPB blog post and a news release distributed by the National Consumer Law Center. Let’s begin with what was stated by the bureau’s Anthony Welcher, who indicated that the CFPB has started the process of “transforming” its stakeholder outreach and engagement work that includes transitioning from former modes of outreach to a new strategy to increase high quality back.

Earlier this year, Welcher recapped the bureau put out a request for information (RFI) on external affairs’ external engagements, a process that culminated last week.

“The comments we received informed our shift to expand external engagements and modify our advisory board and councils to be one focused tool in the evaluative process,” Welcher wrote

Welcher continued that the bureau will continue to fulfill its statutory obligations to convene the Consumer Advisory Board and will continue to provide forums for the Community Bank Advisory Council and the Credit Union Advisory Council. He added the bureau will continue these advisory groups and will use the current 2018 application and selection process to reconstitute the current advisory groups with new, smaller memberships.

“By both right-sizing its advisory councils and ramping up outreach to external groups, the bureau will enhance its ability to hear from consumer, civil rights and industry groups on a more regular basis,” he said.

“In addition to the advisory groups, the bureau will increase its strategic outreach to encourage in-depth conversations, sharing information and developing partnerships focused on consumers in underserved communities and geographies,” Welcher continued.

“These engagements will include regional town halls, roundtable discussions at the bureau’s headquarters with consumer finance experts and representatives, regional roundtables and regular national calls,” he went on to say.

Meanwhile, according to that news release from the National Consumer Law Center, Welcher also hosted a conference call to inform Consumer Advisory Board members and members of two other CFPB advisory boards that their terms were terminated and that they were not permitted to re-apply. The center indicated this action took place two days after 11 consumer advocates and academics shared their concern over the cancellation of the only two CAB meetings scheduled for this year.

“Firing the current CAB members is another move indicating Acting Director Mick Mulvaney is only interested in obtaining views from his inner circle, and has no interest in hearing the perspectives of those who work with struggling American families,” Consumer Advisory Board chair Ann Baddour said in the news release.

In a call with advisory board members this morning, Welcher, who the National Consumer Law Center called a “political hire” brought in by acting director Mick Mulvaney, cited these reasons for the changes:

“The bureau wanted to save a few hundred thousand dollars, which is estimated to be less than .08 percent of the agency’s overall budget. This is despite the fact that members on today’s call offered to pay to attend meetings from their own budgets,” the release said.

“The bureau cited responses to a Request for Information (RFI) on external engagement as a justification for the change. When pressed, Welcher admitted that the decision was made before the Request for Information had closed, and he could point to no RFI response calling for dissolving the advisory boards. A review of the RFI responses reveals there was no response calling for a restructuring or dissolution of the current advisory boards,” the release continued.

“The bureau cited wanting a more diverse, smaller and inclusive group of people involved. Yet, the advisory groups are inherently a small, diverse group of members, based on the Dodd-Frank Act. Members questioned how acting director Mulvaney could have come to this conclusion based on the fact that there had been no meaningful interaction with members,” the release went on to note.

“One of the additional explanations for the firing of the advisory board members is a ‘new’ plan to hold town hall meetings and intimate roundtable discussions — two long-standing practices of the CFPB — and therefore not a justification for firing over 60 committed and diverse volunteers,” the release added.

National Consumer Law Center attorney Chi Chi Wu and member of the bureau’s Consumer Advisory Board reiterated concerns at the close of the news release.

“Firing current members of the advisory board is a huge red flag in this administration’s ongoing erosion of critical consumer financial protections that help average families,” Wu said. “Apparently acting director Mulvaney is willing to listen to industry lobbyists who make campaign contributions, but not the statutorily appointed Consumer Advisory Board members.”

This development continues a string of major changes associated with the CFPB so far this year, including the end of the indirect auto finance guidance as well as four other major proposals from Mulvaney.

RISC acquires Recovery Standard Training

TAMPA, Fla. - 

The compliance education and training offerings from Recovery Industry Services Company (RISC) just became much more robust.

On Tuesday, RISC announced the acquisition of Recovery Standard Training, which is curriculum created and maintained by Hudson Cook.

Officials highlighted the program will soon be added to RISC’s CARS certification and continuing education programs. Hudson Cook will continue to support and update the Recovery Standard curriculum and provide oversight and updates to the CARS curriculum, ensuring third-party vendors and lenders are kept up-to-date with the latest government regulations.

“We are excited about this transaction, which represents unification of robust education curriculum offered to the collateral recovery industry,” RISC founder and chief executive officer Stamatis Ferarolis said.

“The course material and software platform developed by Recovery Standard adds extensive value to RISC’s industry leading CARS certification program,” Ferarolis continued. “This acquisition helps standardize vendor training and certification allowing repossession companies, national forwarders and lenders access to the most comprehensive option for ongoing compliance training.”

Ferarolis went on to stress that auto finance companies expect third-party vendors to meet ongoing compliance standards while ensuring agents are annually trained and comprehensively vetted.

The addition of Recovery Standard Training, which comes one year after RISC’s acquisition of Recovery Compliance Solutions’ vendor vetting services, reinforces RISC’s commitment to consistently offer the best-in-class vendor vetting and compliance training.

Recovery Standard Training materials will be added to RISC’s CARS continuing education program over the course of the next three months. In addition, RISC will add a new course for finance companies, covering skip tracing, cyber security and repossession agent scenarios.

“I am pleased to join forces with RISC to deliver the most up-to-date compliance curriculum for third-party vendors and automotive lenders. RISC’s advocacy for professional repossession demonstrates a commitment to compliance, much like our mission at Recovery Standard Training, making it a clear choice to move forward with this opportunity and bring more unification to the collateral recovery industry,” said Brad Shrader, chief executive officer of Recovery Standard Training.

BillingTree survey shows how much CFPB concerns have diminished


Key findings of BillingTree’s sixth annual Operations and Technology Survey involving collections, recoveries and more, are showing just how much of an impact all of the widespread changes at the Consumer Financial Protection Bureau are leaving on service providers.

For the first time in the history of the survey, BillingTree found that concerns over CFPB regulations ranked lower than all other compliance issues, including payment card industry (PCI) compliance, mandates from NACHA – The Electronic Payments Association, as well as obligations under the Electronic Fund Transfer Act (EFTA) and Regulation E.

BillingTree contends this overall trend is consistent with prior survey predictions after the emergence of the PCI 3.0 compliance rule changes in 2015.

“However, with CFPB plans to release a proposed rule concerning collectors’ communications practices and consumer disclosures (involving the Fair Debt Collection Practices Act), there is a chance this area will experience further disruption,” survey orchestrators said.

Beyond compliance concerns, BillingTree highlighted survey results — collected from more than 150 agencies of all sizes — cited innovative technologies to expand payment channels and enhance collection effectiveness as top factors for growth.

Survey results mentioned the growing consumer demand for mobile payments is driving change, with text payments cited by respondents as the most desired payment option.

However, rather than mobile text to pay being held back by technology limitations, BillingTree learned it is the perceived compliance risks putting the brakes on adoption. This technology out-ranked agent-assisted payment authorization and notification as the payment option carrying the greatest compliance risk.

One respondent stated, “These technologies are available, but with no safe harbor.”

When asked about future technology plans, the survey showed mobile device presentment and payment ranked second at 29 percent, just behind online portals at 31 percent.

Alternative forms of payment including PayPal, e-cash and Bitcoin ranked high, with 24 percent of respondents considering adoption, which suggests recover organizations are ready to embrace consumer technology trends and expand payment channels.

Consistent with prior years, the BillingTree survey indicated Interactive Voice Response (IVR) adoption continues to grow, with 36 percent relying on IVR compared to 28 percent in 2017.

BillingTree will be presenting the survey findings during a free webinar on Thursday beginning at 1 p.m. ET. .

To request a complimentary copy of the 2018 ARM Industry Operations, Technology & Payments report, .

Trump signs resolution negating auto lending guidance


The 2013 indirect auto lending guidance from what was previously called the Consumer Financial Protection Bureau now is officially off the books.

On Monday, President Trump signed into law a bipartisan Congressional resolution disapproving a rule that was in the form of guidance issued by the regulator that now calls itself the Bureau of Consumer Financial Protection about indirect auto finance company compliance with the Equal Credit Opportunity Act (ECOA) and its implementing regulation.

“I thank the President and the Congress for reaffirming that the bureau lacks the power to act outside of federal statutes,” acting director Mick Mulvaney said in a statement released by the regulator. “As an executive agency, we are bound to enforce the law as written, not as we may wish it to be. In this case, the initiative that the previous leadership at the Bureau pursued seemed like a solution in search of a problem. Those actions were misguided, and the Congress has corrected them.

“I want to make it abundantly clear that the bureau will continue to fight unlawful discrimination at every turn. We will vigorously enforce fair lending laws in our jurisdiction, and will stand on guard against disparate treatment of borrowers,” Mulvaney continued.

“I am heartened that the people, through their elected representatives, have corrected this instance of bureau overreach. I look forward to working with the Congress to bring much-needed structural accountability to the Bureau so that our cherished democratic principles are supported and the rights of every American consumer are always protected,” Mulvaney went on to say.

The stroke of Trump’s pen came with cheers from the industry.

“This is a great day for consumers, as Congress and the president have helped to preserve their ability to receive auto loan discounts from local dealerships,” National Automobile Dealers Association president Peter Welch .

“NADA congratulates the U.S. House and Senate for their focus and perseverance on this issue, and the president for signing the new law to protect consumers,” Welch continued.

American Financial Services Association president and chief executive officer Chris Stinebert shared a similar sentiment.

“We welcome the action of Congress and the President,” Stinebert said in a statement sent to SubPrime Auto Finance News. “We are working with our members to assess the impact on the vehicle financing industry as it continues to fully comply with all state laws and regulations on vehicle financing.”

Stinebert likely will be talking about this development and more when he appears during beginning on May 30 in Fort Worth, Texas.

Before the measure landed on Trump’s desk, the House earlier approved S.J. Res. 57, which was written to overturn the much-criticized guidance document under the authority of the Congressional Review Act, by a bipartisan 234-175 majority. The Senate had already passed the joint resolution on April 18 by a 51-47 margin.

Mulvaney went into more detail regarding the impact of what Trump and federal lawmakers have done.

“The enactment of this Congressional Review Act (CRA) resolution does more than just undo the bureau’s guidance on indirect auto lending. It also prohibits the bureau from ever reissuing a substantially similar rule unless specifically authorized to do so by law,” Mulvaney said.

“Given a recent Supreme Court decision distinguishing between antidiscrimination statutes that refer to the consequences of actions and those that refer only to the intent of the actor, and in light of the fact that the bureau is required by statute to enforce federal consumer financial laws consistently, the bureau will be reexamining the requirements of the ECOA,” he continued.

“Today’s action also clarifies that a number of bureau guidance documents may be considered rules for purposes of the CRA, and therefore the bureau must submit them for review by Congress,” Mulvaney went on to say.

“The bureau welcomes such review, and will confer with Congressional staff and federal agency partners to identify appropriate documents for submission,” he added.

Credit Acceptance sees increased activity for originations and compliance


As the subprime auto finance company’s field representatives are generating more business from their active dealer network, state and federal regulators are keeping the compliance team at Credit Acceptance busy, too.

The latest filing to the Securities and Exchange Commission showed Credit Acceptance has encountered nine different regulatory matters since December 2014, including actions from the attorneys general in New York, Massachusetts, Maryland and Mississippi, as well as officials from the Consumer Financial Protection Bureau and the Federal Trade Commission.

The newest addition came when Credit Acceptance indicated that on April 10 the company was ed by the New York Department of Financial Services, Financial Frauds & Consumer Protection Division (DFS). According to the SEC paperwork, Credit Acceptance said that DFS believes that the company may have:

— Violated the law relating to fair lending

— Misrepresented to consumers information related to GPS starter interrupt devices

— Provided inaccurate information in the course of a DFS supervisory examination

“We have not received any written communication from the DFS regarding its conclusions,” Credit Acceptance said in the filing. “We have provided information to the DFS, as requested, but cannot predict the eventual scope, duration or outcome at this time. As a result, we are unable to estimate the reasonably possible loss or range of reasonably possible loss arising from this inquiry.”

During the company’s quarterly conference call with investment analysts, Credit Acceptance Brett Roberts chief executive officer responded as to whether state regulators are taking a great interest in how GPS and starter interrupt devices are being used since the company previously has been questioned about them by the FTC.

“I think it’s hard to compare at this point. It’s very early,” Roberts said. “I think what we disclosed is really what we know at this point. We had a call. The substance of the call is what’s described in the 10-Q, and we're waiting for something in writing.”

Later in the call, Roberts also addressed how the regulatory environment has intensified.

“I think that maybe the main point here is in the last four years, as you point out, we have seven, eight, nine things that we’ve disclosed now. I think in the 24 years I was with the company before that, I don't think we had any. So clearly, something's changed in the regulatory environment,” Roberts said.

“We’re under a lot of scrutiny. We have been for quite a while now,” he continued. “The regulators have a job to do. We respect that. They certainly have their prerogative to ask questions and challenge the things that we’re doing, and it’s our job to operate in a highly compliant way, and we take that seriously. And what’s disclosed in the 10-Q is just where all those matters stand at this point.

“As you said, I don’t want to generalize. We've been asked a lot of questions. We’ve provided a lot of answers, and that’s where it stands at this point,” Roberts went on to say.

First-quarter performance

During the first quarter, Credit Acceptance generated an 18.5-percent year-over-year increase in the number of contracts originated through its active dealer network, which grew by 11.6 percent.

All told, Credit Acceptance added 112,345 contracts to its portfolio in Q1 through 8,762 active dealers, which the company defines as a store that finalizes at least one deal during the quarter.

The average volume per active dealer rose 5.8 percent to nearly 13 contracts per store.

When addressing that growth, Robert told a Wall Street watcher “that could cause you to conclude that the environment was easier. But at the same time, we've made a big investment in our sales force, which could also be driving that number. It’s hard to break out what’s internal and what’s external there.

Roberts added later in the call, “We can see the growth that came from the people that we’ve hired since the expansion started. In rough terms, they grew about twice as fast as the overall book did, so that still leaves decent growth in the sales reps that were here before the expansion started. So we’re seeing faster growth from the new group but strong growth from everywhere.”

That Q1 origination activity as well as collection on the contracts already in its portfolio all combined to push Credit Acceptance to post consolidated net income of $120.1 million, or $6.17 per diluted share. That’s up from $93.3 million, or $4.72 per diluted share, for the same period in 2017.

The company computed that its adjusted net income, a non-GAAP financial measure, for the three months that ended March 31 came in at $118.9 million, or $6.11 per diluted share, compared to $92.3 million, or $4.67 per diluted share, a year earlier.

Accounting discussion

Credit Acceptance senior vice president and treasurer Doug Busk responded to multiple questions about how the company is bracing for Current Expected Credit Loss (CECL) requirements outlined by the Financial Accounting Standards Board (FASB). Some organizations have to begin complying with these new mandates by the end of next year.

After being peppered earlier in the call, Busk offered his understanding of what accounting regulators are asking finance companies like Credit Acceptance to do.

“CECL is an accounting methodology where, as opposed to recognizing a loss when some event occurs, a certain amount of delinquency or a repossession or a sale of a car, you anticipate that loss at the time you originate the loan, and then book a loss upfront,” Busk said. “The flip side of that is, over time, cash equals accounting, so you'd end up recording some loss at loan origination, and then, conceptually here, then recognizing more revenue over time.

“The fair value option is, you're looking at coming up with an estimate of the forecasted cash flows that the portfolio would generate, and you’re basically calculating an exit price, which represents the fair value of the portfolio at that point, which as I mentioned earlier, would include an estimate of a discount rate, which would represent the return associated with exiting the portfolio,” he continued.

What investment analysts want to know is exactly how Credit Acceptance is going to handle these changes.

“Well, we’re still assessing both alternatives, and our objective would be to end up with the accounting that most closely reflects the economic reality of our business,” Busk said. “So we’re in the process of assessing both of those things. Once we have something material to report, we’ll disclose it in our public filings.

“If neither of those methods line up with the underlying economics of our business, we'll continue to include non-GAAP information in our press release to give shareholders better insight into how the business is actually performing,” he continued.

“We’re obviously working on it. We're working on it hard, but we're not in a position to disclose anything until we've completed our work and fully understand all the issues,” he added.

House passes resolution effectively repealing CFPB vehicle finance guidance


Now it just needs President Trump’s signature.

Much to the delight of industry leaders, the U.S. House of Representatives voted on Tuesday to repeal the Bureau of Consumer Financial Protection’s controversial 2013 guidance on indirect auto financing.

The House approved S.J. Res. 57, which would overturn the much-criticized guidance document under the authority of the Congressional Review Act, by a bipartisan 234-175 majority. The Senate had already passed the joint resolution on April 18 by a 51-47 margin.

“The CFPB’s 2013 indirect auto lending guidance was a harmful, ill-advised solution that purported to solve the problem of a disparate impact theory that only existed in some mythical CFPB fairyland,” National Independent Automobile Dealers Association chief executive officer Steve Jordan said.

“The reality is automobile dealers had a rich history of using indirect lenders to provide financial transactions in the best interests of the driving public long before the CFPB decided to interfere. NIADA is thrilled Congress has removed the CFPB from that equation,” Jordan continued.

The guidance, issued in March 2013, claimed dealer discretion on interest rates creates a “significant risk” of unintentional disparate impact discrimination and spelled out the bureau’s intention to pursue enforcement actions on that basis.

“This vote indicates that American consumers have spoken to their elected representatives to say they want competitive pricing on vehicle loans,” said Chris Stinebert, president and CEO of the American Financial Services Association, a trade association representing vehicle finance companies.

“We are an industry that competes for consumers’ trust as well as their business while helping them acquire vehicles that support their transportation needs,” Stinebert continued.

AFSA explained The CFPB’s vehicle finance lending policy, issued through guidance, directed fundamental market changes to the industry, which was already regulated by other federal agencies and state laws and regulations. AFSA added the guidance was issued without any public comment, consultation with other federal agencies or transparency.

Its repeal will once again allow dealers to set contract terms and rates for third-party financing without being subject to CFPB enforcement.

“Today’s action furthers the bipartisan effort that began more than five years ago to preserve the ability of local dealerships to offer discounted auto loans to their customers. We commend House Financial Services Committee Chairman Jeb Hensarling (R-Texas) and Rep. Lee Zeldin (R-N.Y.) for their leadership on this issue. As the measure has now cleared Congress, we look forward to the expected signature by the president,” National Automobile Dealers Association president and CEO Peter Welch said.

“The joint resolution is a measured response to the CFPB’s attempt to avoid congressional scrutiny by issuing ‘guidance’ that imposed a new policy without necessary procedural safeguards. Enactment of S.J.Res. 57 will help ensure every consumer’s right to get a discounted loan in the showroom,” Welch continued.

“Every customer deserves to be treated honestly and fairly when purchasing or financing a car or truck, and there is no room for discrimination of any kind, period. We continue to encourage all local dealerships to take up NADA’s voluntary fair credit compliance program, which is based on a U.S. Department of Justice model. It helps eliminate fair credit risk in auto lending while ensuring a competitive marketplace,” Welch went on to say.

Critics have pointed out the CFPB’s theory is based on shaky methodology for determining disparate impact, and the guidance was put in place without comments from stakeholders, public hearings or studies of its effect on the cost of credit to consumers.

“Without seeking any public comment or studying the impact on consumer credit,” NIADA senior vice president of legal and government affairs Shaun Petersen said, “and with no evidence to back up its claim, the bureau issued a rule under the guise of guidance to limit dealers’ ability to meet their customers’ needs when shopping for credit.

“We applaud Congress for taking steps to rescind the bureau’s overreach,” Petersen added.

The resolution followed a December opinion from the Government Accountability Office that defined the guidance document as a CFPB rule for the purposes of the CRA, which meant it could be struck down by a simple majority vote of both houses of Congress.

The (AIADA) today applauded the United States House of Representatives' passage of a joint resolution annulling the Consumer Financial Protection Bureau's controversial auto lending guidance, which sought to limit a consumer's ability to receive a discounted auto loan from a dealer. The resolution, already passed by the Senate, will now go to President Trump's desk for his signature.

“Today’s vote by the House is a reminder that our government can still stand up for the little guy,” American International Automobile Dealers Association President and CEO Cody Lusk said. “Auto dealerships are primarily small family businesses, and never should have been targeted by the CFPB, which has strayed from its mission of regulating massive Wall Street financial institutions.

“Today's vote allows dealers to return to offering their customers more competitive financing choices and opportunities,” Lusk went on to say.

The White House has issued a statement in support of the resolution, and President Trump is expected to sign it into law.

“CBA members are committed to ensuring strong fair lending policies and practices are in place at their banks. However, the bureau’s 2013 Auto Bulletin was a backdoor attempt at rulemaking and failed to provide banks with a clear blueprint to ensure compliance,” Consumer Bankers Association president and CEO Richard Hunt said.

“We thank Representative Lee Zeldin (R-N.Y.) for leading the effort in the House and Speaker Paul Ryan for bringing the resolution to the House floor for a vote. We also thank Senators Jerry Moran (R-Kan.), Pat Toomey (R-Penn.) and Majority Leader Mitch McConnell for their efforts in the Senate. We encourage President Trump to sign this resolution,” Hunt went on to say.


Wells Fargo enters consent orders with $1 billion civil penalties


Wells Fargo said Friday it has entered consent orders with the Office of the Comptroller of the Currency and the Consumer Financial Protection Bureau, under which the company will have to pay civil penalties totaling $1 billion.

The consent orders with the OCC and CFPB deal with matters involving Wells Fargo’s compliance risk management program in addition to “issues regarding certain interest rate-lock extensions on home mortgages and collateral protection insurance (CPI) placed on certain auto loans,” the company said in a news release.

Wells Fargo said the issues around interest rate-lock extensions and CPI have been disclosed previously.

The consent order also requires Wells Fargo to submit plans on how it is continuing to augment compliant and risk management as well as how it is approaching customer remediation.  Those plans are to be reviewed by the Wells Fargo board.

“For more than a year and a half, we have made progress on strengthening operational processes, internal controls, compliance and oversight, and delivering on our promise to review all of our practices and make things right for our customers,” said Timothy Sloan, president and chief executive officer of Wells Fargo, in a news release.

“While we have more work to do, these orders affirm that we share the same priorities with our regulators and that we are committed to working with them as we deliver our commitments with focus, accountability, and transparency,” Sloan said. “Our customers deserve only the best from Wells Fargo, and we are committed to delivering that.”