A day after the Federal Trade Commission did a little scoreboard pointing with its compilation of 2018 regulatory actions, including its Used Car Rule crackdown last July, a member of a social media group I belong to for car people posted a photo of the FTC’s revised Buyers Guide with the following question: "Does anyone use this?"
Ugh, I thought. I guess he missed one of the biggest regulatory stories of 2018, when the FTC and 12 other law enforcement agencies visited 94 dealerships in 20 cities to check for compliance with its revised Buyers Guide. Only 33 dealerships had the revised guides, which took effect in January 2018, on more than half of their inventory, and only 14 had them on all their vehicles. Given the results, I suspect last year’s crackdown won’t be the last.
My name is Gregory Arroyo. Welcome to my new DealerSocket blog. I’ve spent the last 12 years covering the F&I industry, so compliance is kind of my thing. So I thought I’d introduce myself with a little regulatory update — a compliance warning, if you will.
Let’s begin with the major F&I-related announcement 2019 NADA Chairman Charlie Gilchrist made during the 2019 Vehicle Finance Conference, an event the American Financial Services Association (AFSA) hosts annually just prior to the National Automobile Dealers Association’s convention. As reported by Automotive News, the NADA plans to roll out in the second quarter a Voluntary Protection Products Policy, a template that will contain best practices over the lifecycle of an F&I product. It will cover the development of an advertising strategy, and the handling of consumer complaints and cancellations.
What’s interesting is the NADA made its announcement the same day the CFPB’s Office of Servicemember Affairs published its sixth annual report on critical issues and emerging trends facing the military community. Designed to inform the bureau’s efforts to protect military consumers, the report was also released a week after new CFPB Director Kathleen Kraninger asked Congress to grant the bureau “clear authority” to supervise finance sources for compliance with the Military Lending Act (MLA). And let’s just say the report didn’t paint F&I product sales to military consumers in a positive light.
On Page 17 of the 39-page report, the bureau claims that many military consumers were unaware that F&I products were optional and that the costs of those protections would be added to the total amount financed. The bureau also notes that “many servicemembers” didn’t know how they wound up financing thousands of dollars in add-on products.
The most damning part of this section is a quote from a military member, who detailed his experience with a GAP provider who refused to honor its product’s provisions because a total loss event occurred outside the United States. That’s despite the company confirming in writing that the vehicle would be covered if the servicemember was reassigned to another country and operated the vehicle there. “I simply want [company] to honor its commitment to cover the deficiency between the insurance payout and the remaining balance of the loan,” the quote reads, in part.
Stories like that hurt the industry’s more than year-long effort to get the interpretive rule the Department of Defense issued in December 2016 under the MLA repealed. Essentially, the rule states that vehicle finance deals involving military consumers and their dependents — transactions that were statutorily exempt from the MLA prior to the DOD’s actions — become subject to the MLA’s requirements and limitations if GAP or credit insurance is included.
Adding to the confusion surrounding that guidance was a separate legal analysis that said the interpretive rule, combined with a ban the DOD added several years ago to keep military consumers out of payday debt traps, means dealers cannot engage in conventional vehicle financing if a deals falls under the MLA.
That’s why many finance sources won’t touch those deals. Keep in mind the CFPB doesn’t have direct authority over most franchised dealers, but it can indirectly impact their business. In fact, it was the CFPB’s activities that inspired the DOD’s interpretive rule.
The regulator that does have direct authority over dealers is the FTC, which, as I previously, noted, took a bit of a victory lap with its Jan. 29 web post. Aside from its Used Car Rule crackdown, the regulator listed the $3.5 million it returned to victims of a California dealer group’s alleged yo-yo financing tactics and payment packing scheme. Also listed was an Arizona group’s alleged credit application fraud, as well as the regulator’s actions against a Washington, D.C., dealer group for allegedly sending fake “urgent recall” notices to lure customers into its showrooms. The FTC even sued the marketing firm behind that promotion.
By the way, did you know that 2018 was another record for data security breaches? Keep in mind the now fully staffed FTC, which also has a relatively new director of consumer protection, has made it clear data security and privacy is a top priority.
The regulatory world was watching when the NADA and several other trade groups successfully lobbied Congress to repeal the CFPB’s controversial guidance on dealer participation last May. I get the feeling we’re about to experience what that means. Dealership compliance officers, you’ve been warned.
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