As Obama signs Finance Reform into law, excluding dealers, consumer finance, including dealer F&I, will change
President Obama signed Finance Reform legislation into law last week. And while dealers are exempted from the oversight of the Consumer Finance Protection Bureau (CFPB) the new law will create, dealers and others involved in consumer financing likely will encounter new rules of engagement.
“Buy Here Pay Here” dealers, for example, will indeed be under the oversight of the CFPB unlike dealers in general. The reason BH/PH dealers are under CFPB’s jurisdiction is because they typically do not assign retail credit or retail leases to a third party lending source. Correspondingly, dealers located near military installations likely will have significant scrutiny by the government because the law specifically requires the Federal Reserve and the Federal Trade Commission (FTC) to coordinate with the Office of Service Member Affairs to “ensure that service members and their families are educated and empowered to make better decisions regarding consumer financial products and services offered by motor vehicle dealers in the proximity of military installations.”
All automobile dealers need to also be mindful of the FTC’s expanded authority over F&I operations generally given the political fallout the Finance Reform legislation caused about the automobile business.
The most likely impact for all dealers, however, will be a push by the banks and other financial institutions with which dealers do business to burden them with CFPB compliance issues. Dealer attorney
Michael Charapp says dealers should carefully review the master agreements they sign with their finance sources for clarity on the following issues:
1. The definition of “without recourse” may take on new meaning when finance sources attempt to redefine the terms to include some obligation on the dealer in the event of a customer default.
2. Dealer reserve and how chargebacks will be assessed could change.
3. Finance sources and lessors could start requiring guarantees from dealers regarding their trade practices with credit customers and start imposing tighter caps on interest rates.
4. Because of heightened federal oversight, finance companies are more likely to insist that disputes be heard in their home state, putting dealers at a disadvantage.
5. Finance companies may require that dealers certify that everything the customer has represented is true.
6. Finance companies may require dealers to guarantee, rather than verify, that insurance on the vehicle is in force for the duration of the loan period.
7. Finance companies could try to take over the sale of extended service contracts and the like, if they are included in the sale of the vehicle.
The final rules and regulations of Finance Reform will be several years in the making, but most observers expect the CFPB to be up and running within months from now, with continuing demand from consumer advocates for greater government oversight of consumer financial practices. Dealers and others closely involved in consumer finance should plan accordingly.
