With regulators such as the Consumer Financial Protection Bureau issuing official requests for information about the implications of rules, investigations and enforcement actions, a sterling example might have arrived from BB&T Dealer Financial Services.
In a direct message to SubPrime Auto Finance News on Friday, the auto finance division of the North Carolina-based commercial bank indicated that it’s abandoning its flat-fee dealer compensation program first implemented nearly three years ago.
Brian Davis, BB&T’s director of corporate communications, explained the reasons for the bank’s decision; details that likely won’t come as much of a surprise to providers trying to compete for the best paper to fill their portfolios.
“While we had some successes with the flat fee program announced in 2015, BB&T also experienced an overall reduction in volume,” Davis said. “So to provide our dealer clients with more options and better flexibility, we will introduce a more traditional auto pricing program in mid-March.”
“BB&T remains firmly committed to the auto finance industry and to the fair and equal treatment of all consumers,” Davis added.
The bank originally made the switch to flat fees back in July 2015, just weeks after the CFPB published a rule that allowed the agency to supervise larger nonbank auto finance companies for the first time. The bureau already supervised auto financing at the largest banks and credit unions, but that rule extended that supervision to any nonbank auto finance company that makes, acquires or refinances 10,000 or more contracts or leases in a year.
When then-CFPB director Richard Cordray arrived for his semiannual hearing with the House Financial Services Committee that fall, lawmakers clashed with the agency leader over the rule, believing it was directly targeting dealer participation in hopes of moving the entire industry toward a flat-fee structure.
Rep. Scott Garrett, a New Jersey lawmaker, directly asked Cordray, “Are you working to eliminate dealer reserves?”
Cordray replied with, “We have been working to try to address a practice that we believe is discriminatory, discretionary markups.”
With dealer participation possibly coming back at BB&T Dealer Financial Services, perhaps the bank’s auto finance activities will improve.
According to the bank’s third quarter financial statement — the last one that included a carve-out of Dealer Financial Services performance as the institution changed its structure and reporting for Q4 — net income for its auto-finance division came in at $38 million, flat compared to the prior quarter and down by $2 million year-over-year.