What Most Dealers Need to Know About the Consumer Finance Protection Bureau

By now, most dealer personnel should be aware that there was a massive law passed last year called the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.  Also referred to generically as “the Wall Street Reform Bill” or “Dodd-Frank,” this new law provides for sweeping changes in the consumer finance arena and, among many other things, created a new, well-funded regulator called the Consumer Financial Protection Bureau (CFPB) (www.consumerfinance.gov).

Fortunately for dealers, the National Automobile Dealers Association (NADA) effectively lobbied for an exemption to that part of this law that gave the CFPB powers to regulate consumer finance.  As a result, most new car dealers will not be subject to oversight or direct regulation by the CFPB.  But wait!  As to be expected, there is some “fine print” here.

  • Dealers who operate “buy-here-pay-here” stores or related finance companies will still be within the jurisdiction of the CFPB.
  • In order to be exempt, dealers must be “predominantly engaged in the sale and servicing of motor vehicles, the leasing and servicing of motor vehicles, or both.” (emphasis added)(12 USC § 5519).  This has created a bit of a stir among used car dealers who may not have service facilities.  If a dealer does not service vehicles, it may not fall within this carve-out.
  • Both captive and non-captive lenders will be subject to the CFPB rules and oversight.  Because of this, dealers may ultimately be indirectly regulated as a result of new lender policies.  Be sure to have your attorney carefully review any dealer agreement amendments proposed by your finance sources.
  • Dealers must still be very concerned about FTC enforcement activity and new rulemaking authority. The FTC retains jurisdiction over dealerships and has been given new streamlined rulemaking authority under Dodd-Frank.  Dealers should not be surprised to see new regulations related to spot-delivery, finance reserve, and/or pre-dispute arbitration agreements.

As it stands today, the only new regulations  that have come out as a result of Dodd-Frank are those related to the new adverse action notice requirements and the Truth in Lending Act threshold increase to $50,000.

The CFPB officially opened for business on July 21.  To say the least, it will be interesting to see how this bureau will wield its power and to what extent its actions will impact dealers.  ADL will, of course, keep you informed as changes occur.