Pub. 4 2014 Issue 1

10 AUTOMOBILE DEALER NEWS ILLINOIS www.illinoisdealers.com R ecently I wrote an article for Spot Delivery on the Consumer Finan- cial Protection Bureau’s response to House Democrats regarding the agency’s fair lending meth- odology. Since the article appeared, my phone has been ringing off the hook with calls from dealers and their counsel. In a particularly sweet irony about the agency committed to transparency, a lawyer told me he called the CFPB’s press office to request a copy of the letter to lawmakers and was told he could get it only if he filed a Freedom of Information Act request! But his call to me requesting a copy of the letter led to a more in-depth discussion. We talked about the dilemma dealers face in dealing with the fallout from the CFPB’s fair lending concern about dealer partici- pation and discretionary markups. [The term“fair lending” is a bit of a misnomer when we talk about indirect auto finance because, of course, this financing method involves retail installment sales contracts rather than loans. Tom Hudson, who threatens to fire any Hudco lawyer who calls a RISC a“loan,”has asked me to think of a more precise term. But I can’t yet get “fair financing”to roll off my tongue so, with apologies to Tom, I’ll continue to use the term fair lending]. I’ve been thinking about the five mis- takes dealers can make that can increase their fair lending risk. Mistake #1 Believing that the CFPB’s fair lending concern can’t reach dealers. The CFPB does not have jurisdiction over dealers with service departments (generally franchise dealers) unless the dealer holds its own financing contracts. That fact has led some dealers mistakenly to think that the CFPB’s hoopla over fair lending is not their problem. The CFPB may not have jurisdiction over your dealership, but the U.S. De- partment of Justice and the Federal Trade Commission do, and their enforcement powers are nothing to sneeze at. The FTC, for instance, can seek a civil penalty of up to $16,000 for each violation of the Equal Credit Opportunity Act and Regulation B. That means $16,000 for every racial minority, Hispanic, female, or elderly bor- rower who the FTC believes paid a higher markup than a similar person who is not in a protected group. Every information demand I’ve seen from the CFPB reminds the creditor that it can turn over information it receives to other enforcement agencies, including state attorneys general. That means the CFPB has a direct pipeline to other en- forcement agencies for dealer information it gathers from banks and finance compa- nies. It is only a matter of time before we see cases brought by the DOJ, the FTC, or the states based on data the CFPB has collected from financing sources. It is no fun to be the subject of a CFPB fair lend- ing enforcement action. But, believe me, a DOJ, FTC, or state enforcement action is no picnic either. Mistake #2 Ignoring communications from financing sources about potential discrimination. For years, some banks have sent letters to dealers notifying them of discrepancies in average markup amounts between mi- norities and non-minorities. As the CFPB Dealers to Avoid Five Fair Lending Mistakes for By Jean Noonan