The Consumer Financial Protection Bureau is creating a task force to examine federal consumer finance laws. It's looking for gaps and loopholes that cause harm to consumers and areas of complexity that could be smoothed out for lenders.
The auto finance community believes the task force signals a positive change in the bureau — a willingness to learn and understand rather than lead with enforcement.
On Oct. 11, the bureau announced plans to solicit assistance from a team of seven consumer protection experts knowledgeable in financial services. The team -- one chair and six members -- is to recommend "ways to improve and strengthen consumer financial laws and regulations," according to the CFPB.
The task force, which will report directly to Kathleen Kraninger, CFPB director, is also seeking ways to harmonize laws surrounding consumer finance.
Michael Buckingham, senior director of automotive finance at J.D. Power and Associates, says the bureau has been inconsistent when it comes to auto finance. Around 2015, the CFPB, then led by Richard Cordray, said that dealerships' discretion to vary the amount of dealer reserve — the retail margin that dealerships earn for arranging a car loan — resulted in minorities being charged higher interest rates for auto loans than nonminority borrowers with similar credit, even if no discrimination was intended.
The bureau urged auto lenders to switch to paying dealerships a flat fee to eliminate the risk of discrimination, and entered into a series of consent orders with lenders including Ally Financial Inc., American Honda Finance Corp., Fifth Third Bancorp and Toyota Motor Credit Corp.
"The consent orders were inconsistent," Buckingham said. "Some were required to pay fines and kept the existing markups in place; some had fines but had different rules on rate markups. When you have inconsistencies like that, it's very concerning to the lending community."
If there's any financial services area that deserves a rethink, it's auto finance. Creating a task force is a positive step in ensuring consumers are treated fairly in their financial transactions without stifling the lenders that make those transactions happen.