The U.S. Court of Appeals ruled last week that the Consumer Financial Protection Bureau is unconstitutionally structured and must abide by the statute of limitations in all enforcement actions. But dealers who are breathing a sigh of relief shouldn’t.
The ruling will likely have no effect on the CFPB’s relationship with auto dealers and lenders, said David Missimer, general counsel for Automotive Compliance Consultants.
The CFPB has not indicated that it will slow its actions against auto lenders, and other regulators may be expanding their scope on auto lending and F&I product sales, he said.
Under the ruling, the president will have the power to supervise and direct the CFPB director and to remove him or her at will. The previous CFPB structure allowed the director to be autonomous and fired by the president only for cause.
The court’s decision says the CFPB can continue to operate as an agency, but it must operate as an executive agency like other executive agencies that are headed by a single individual, such as the Department of Justice or the Department of the Treasury.
Depending on the outcome of the November election, though, the ruling may have little impact, Missimer said. Republicans have largely been critical of the CFPB, while Democrats have been supportive.
Sen. Elizabeth Warren, a Democrat from Massachusetts, helped create the CFPB before she became a senator, and the Obama administration opposed a bill in the House of Representatives, H.R. 1737, or the Reforming CFPB Indirect Auto Financing Guidance Act, saying it would revoke “important guidance designed to prevent discriminatory pricing of auto loans.”
Under a Republican administration, the likelihood is higher that the CFPB’s abilities would be curbed, while under a Democratic administration the regulator is “not going to change,” Missimer said.
The appellate court’s ruling also said that the CFPB has to abide by the statute of limitations in all enforcement actions. The Bureau has previously said that under the Dodd-Frank consumer protection act there were no limitations for its administrative actions.
The decisions aren’t final, though, Missimer said. The CFPB will likely appeal them.
‘Minor chip’ at power
Although the rulings are significant to the CFPB’s structure and process, Missimer said, the regulator will still aim to limit dealers’ retail margins on auto loans. This ruling and the movement of bills to limit the CFPB’s 2013 auto lending guidance, such as H.R. 1737 and its companion bill in the Senate, S. 2663, give dealers a false sense that the CFPB will distance itself from auto lending, he said.
H.R. 1737 passed the House 332-96 in November 2015 with a bipartisan vote, but S. 2663 will be more difficult to move through the Senate. If it does pass the Senate, it could be vetoed by the president, Missimer said.
Last week’s ruling “won’t change [the CFPB’s] approach to auto lending at all,” Missimer said. “This is just a minor chip away at the CFPB’s power.”
Dealerships should continue to refine their compliance measures, Missimer said. Disparate impact cases existed before the CFPB was formed, and the Justice Department pursued them, he said. The issues aren’t going away, so dealers should be proactive and “protect the business model they know, understand and want to maintain.”