Who’s responsible for passing along bad credit info?
Jackman: The CFPB will not let lenders off the hook "because they gave me the wrong information."
Will dealerships catch fallout from the Consumer Financial Protection Bureau’s consent order last month with First Investors Financial Services Group?
Experts disagree, with some saying no and others suggesting at least indirect implications for dealerships.
The CFPB last month fined the subprime auto lender $2.75 million for allowing its vendor to furnish customer data to credit reporting agencies that the lender had reason to believe contained inaccuracies. As a “furnisher,” First Investors Financial Services Group was responsible for making sure the data was accurate, the CFPB said.
On the face of it, the consent order didn’t have anything to do with dealerships. The kind of customer data the CFPB cited included items far removed from dealerships, such as if, when, and by how much a customer’s payment was delinquent, and whether repossessions were voluntary or involuntary.
No likely impact
The National Automobile Dealers Association said it’s unlikely the consent order has implications for dealerships.
“This is very different from the consumer information that dealers provide to finance sources, which largely consists of information that the consumer entered on the finance source’s credit application,” said Paul Metrey, NADA chief regulatory counsel, financial services, privacy and tax.
Metrey said the consent order was more likely to prompt lenders to check on vendors furnishing customer data to credit bureaus, as in the First Investors Financial Services Group case.
Bill Himpler, executive vice president of the American Financial Services Association, a Washington trade group, said he’s concerned the consent order will make lenders think twice about voluntarily furnishing data to the credit bureaus. “The last thing anyone wants to see is a chilling effect on creditors providing performance data,” he said. “That’s what makes credit histories accurate.”
Dealers transmit, too
But Stefanie Jackman, an attorney in Atlanta with the law firm Ballard Spahr, points out that dealerships do transmit customer information to finance sources. It’s at least possible, she said, that the consent order could make lenders worry about the accuracy of customer information they get from dealerships.
“The dealer is not furnishing information to the credit bureaus, but they are providing it to the finance companies who are furnishing it to the credit bureaus,” she told Automotive News. Jackman wrote an article titled “Furnishers Beware” on the law firm’s website.
“One message [from the consent order] is definitely that the CFPB will not let lenders off the hook ‘because they gave me the wrong information.’ That’s not going to be an excuse,” she said.
Dealership compliance trainer Gil Van Over, president of gvo3 & Associates in Crown Point, Ind., said lenders commonly rely on dealerships to “warrant” that customer information on credit applications is accurate.
Often, lenders don’t actually double-check the information unless the loan goes bad and the car is repossessed. If inaccuracies are found, the lender may want the dealer to reimburse the loss, he told Automotive News.
If lenders were to review more credit applications up front, effects could include longer approval times and higher lender costs, which eventually would get passed down to retail car buyers, he said. And that could affect dealerships’ customer satisfaction scores.
You can reach Jim Henry at email@example.com.