Cash vs Credit pricing and the CFPB TEXAS InDEPENDENT AUTO DEALERS ASSOCIATION July 26 2016 The Long Arc of Consumer Protection Laws William Proxmire to Elizabeth Warren 1968 to 2016 ID: 583513
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Slide1
33
Life After Herbies –
Cash
vs
. Credit pricing and the CFPB
TEXAS
InDEPENDENT
AUTO DEALERS ASSOCIATION
July 26, 2016 Slide2
The Long Arc of Consumer Protection Laws
William Proxmire to Elizabeth Warren,
1968 to 2016Slide3
What has Driven the Changes?
Dealers and finance companies behaving badly
Federal and state legislation
and regulation
Consumer demands and expectations
Technological advancesSlide4
Often media provoked
NY Times – BHPH and Independent Dealers, GAP and Starter Interrupt Devices
LA Times – BHPH, GAP and Starter Interrupt DevicesSlide5
Who is driving the changes
we are seeing?
Consumer advocates
National Consumer Law Center
Center for Responsible Lending – “Under the Hood”
Public Citizen – Arbitration Report (2007), Rip-Off Nation (2007), Repo Madness (2010)
State AGs – Used Car Rule, spot deliveries
FTC petitioned to investigate open recallsSlide6
What are these groups pushing for?
A national finance charge cap (proposed federal law, new DOD Regulation)
An “all-in” APR (proposed federal law, current DOD rule, proposed CFPB payday lending rule)
Ban on in-person collection visitsSlide7
What are these groups pushing for?
(Continued)
Limitation on calls to the workplace and calls to references
A ban on predispute arbitration (Dodd-Frank) – probably a “done deal”Slide8
What are these groups pushing for?
(Continued)
New Laws
A ban on or severe restrictions on spot deliveries (State AG initiative) – FTC quiet so far, but stay tuned
A ban on dealer participation, or at least a requirement for “flats” (CFPB enforcement actions) – Will direct lenders benefit? Slide9
What are these groups pushing for?
(Continued)
New Laws
An end to discretionary pricing for F&I products (CFPB enforcement actions) - CFPB sees discrimination possibilities everywhere
A ban on self-help repossession (Public Citizen study, NCLC UCC proposal) – Not likely, but indicates how radical some of the proposals can be
Dealer disclosure of cash price of cars (CA BHPH legislation, NC DOJ settlement, Herbies) – A real crimp on BHPH and Special FinanceSlide10
What are these groups pushing for?
(Continued)
New Laws
A ban on GPS and starter interrupt devices (proposed laws – several states)
Fair Debt Collection Practices Act applicability to 1
st
party creditors (CFPB statements) – BHPH dealers and most finance companies now exemptSlide11
What are these groups pushing for?
(Continued)
New Laws
A ban on the sale of cars with open recalls (recently defeated amendments to federal Highway Bill, FTC Enforcement Action, AutoNation Announcement)
A 3-day right to rescind (CA Car Buyers’ Bill of Rights) – Most consumers think this is already the lawSlide12
What are these groups pushing for?
(Continued)
The enforcement of existing laws:
Discrimination (ECOA and Reg B) – CFPB actions vs. Ally, Honda
Advertising (TILA, Reg Z and UDAP) – FTC “Operation Steer Clear”Slide13
What are these groups pushing for?
(Continued)
The enforcement of existing laws:
Payment packing (TILA, Reg Z and UDAP) – several state AG enforcement actions, much FTC interest
Hidden finance charges (TILA and Reg Z) – CFPB enforcement actionsSlide14
The CFPB and Herbies
January, 2016 –
CFPB action against Herbies Auto Sales
Herbies – a single location CO buy-here-pay-here used car dealer
The CFPB alleged that Herbies unlawfully advertised a misleadingly low 9.99 percent APR, without disclosing charges for a required warranty, a payment reminder device and other credit costs as finance charges. The CFPB claimed that this helped Herbies convince consumers that they would get the 9.99 percent APR instead of a much higher rate actually charged. Also, the CFPB claimed that Herbies engaged in abusive practices. Slide15
The CFPB and Herbies
(Continued)
The CFPB alleged that Herbies:
Hid finance charges and advertised a far lower APR than consumers received:
Herbies
“lied
to
consumers”
about finance charges and APRs in marketing materials,
showroom
window displays, and in Truth-in-Lending Act disclosures. Hidden finance charges included $1,650 for a
required
repair warranty and $100 for a
required
GPS payment reminder device.
Slide16
The CFPB and Herbies
(Continued)
The CFPB
alleged
that Herbies:
Hid finance charges that stemmed from a refusal to negotiate car prices:
Herbies refused to negotiate prices with credit customers, but did negotiate with cash customers.
The difference in price was a
finance
charge that
should have been included in the
APR.
Slide17
The CFPB and Herbies
(Continued)
The CFPB
alleged
that Herbies:
Used abusive practices:
Herbies’
“financing scheme”
lured consumers with misleading advertising and then kept them in the dark about the true cost of financing, taking advantage of consumers’ inability to protect their interests in selecting or using Herbies’ financing.
Slide18
The CFPB and Herbies
(Continued)
The CFPB
required
Herbies to:
Pay $700,000 to consumers to
consumers who financed cars with Herbies and pay a civil penalty of $100,000 (suspended
if consumers are
paid).
Stop
misrepresenting interest rates, finance charges, or amounts financed, or any other fact material to consumers concerning the financing of any vehicle.
Slide19
The CFPB and Herbies
(Continued)
The CFPB
required
Herbies to:
Clearly and prominently post the purchase price
on all automobiles for sale when offering auto financing
.
Provide
consumers certain information about the financing offer, including the actual APR, price of the car, and all finance charges, and get a signed acknowledgment from consumers that they received the required information before or at the time financing is offered.
Slide20
Dealer Challenges
Avoiding CFPB and FTC enforcement actions
Complaint portals, private suits, state AG actions, whistleblowers, “hidden camera” investigative news reporters
Slide21
Dealer Challenges
(Continued)
Really understanding legal requirements - Training
AFIP Certification Program
NAF Certification program (for BHPH or for advanced training)
NIADA TrainingSlide22
Dealer Challenges
(Continued)
Addressing compliance – written
C
ompliance
M
anagement
S
ystem
Board (ownership)
Management oversight
Written compliance program
Complaint response program, auditSlide23
Dealer Challenges
(Continued)
You cannot just buy a form, manual or program “off the shelf”
There is no “plug and play”
No substitute for a hard slog, actually learning compliance
You cannot outsource the responsibility for getting it right
You are responsible for everything done in your nameSlide24
Dealer Challenges
(Continued)
Resources are available, but at the end of the day, YOU have to get this compliance stuff right!
“We’ve always done it that way” won’t work for compliance Slide25
Resources
Go to
www.ftc.gov
Click on “Tips and Advice,” then on “Business Center,” then on “Advertising and Marketing”
You will find these publications:
Advertising and Marketing Basics
Online Advertising and Marketing
Telemarketing
Read Them!!!!!Slide26
More Resources
State Auto Dealer Associations
State Independent Auto Dealer Associations
NADA
NIADA
TIADA
Vendors (but be very careful)Spot DeliveryF&I Legal Desk BookSlide27
Questions?Slide28
Contact Information:
Tom Hudson
Hudson Cook, LLP
7037 Ridge Road, Suite 300
Hanover, MD 21076
410.865.5411,
thudson@hudco.com Eric JohnsonHudson Cook, LLP8524 South Western Avenue, Suite 114
Oklahoma City, OK 73139
405.602.3812,
ejohnson@Hudco.com