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ReprintsConsumer protection bureau is new watchdog, but FTC, Justice Department still can bite
Photo credit: BLOOMBERG
ORLANDO -- Auto lenders and dealers are so worried about the new Consumer Financial Protection Bureau that they could overlook a couple of more familiar but still toothy watchdogs, namely the Federal Trade Commission and the Department of Justice, some industry watchers say.
"The FTC has been deeply embarrassed because they used to be the consumer protection agency," said Andrew Sandler, chairman of Washington-based law firm BuckleySandler, at the Consumer Bankers Association "CBA Live" conference here this month. "They're bound and determined to demonstrate that they, too, are a serious enforcement agency. If you're in the auto business, you should be spending some quality time with your good friends from the Federal Trade Commission."
Starting July 21, the new Consumer Financial Protection Bureau is scheduled to take over many aspects of regulating auto lending. Some of those responsibilities are inherited from other agencies. The precise impact is yet to be determined, but in some ways the Consumer Financial Protection Bureau supersedes the FTC.
At the same time, however, the FTC will get new authority to regulate auto dealers, Michael Benoit, a partner at Hudson Cook law firm, said during an online presentation this month that was part of Automotive News F&I Week. He said the FTC can be expected to look into issues surrounding dealer compensation, spot deliveries and dealer participation in interest rate profits.
Benoit, who also spoke at the CBA conference, told the Orlando audience that it could take the Consumer Financial Protection Bureau some time to get around to the auto industry since its first priorities in terms of consumer lending seem to be the credit card and mortgage industries. He warned, however, that doesn't mean the auto industry can relax.
Indeed, Sandler pointed out at the CBA conference that in January 2010 the Department of Justice established a Fair Lending Task Force, which has alleged discrimination in auto lending on its agenda. He said ongoing litigation includes a case where a bank and six auto dealerships were accused of violating the Equal Credit Opportunity Act for allegedly charging higher interest rates for some Hispanic customers.
He recommended that lenders take measures such as closely monitoring policies and procedures in areas where the Justice Department has shown an interest, including pricing, and especially any policies that pertain to making exceptions to the rules. Sandler said lenders should remember that ultimately, they might be liable for what dealers do.
Said Sandler: "Whenever there is discretionary pricing, where there is a third party in charge of pricing a loan that ends up on your books, it's going to be viewed as your responsibility to make sure it was made in a fair and nondiscriminatory manner."
You can reach Jim Henry at autonews@crain.com.
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