Tag Archive | "CFPB"

EFG Predicts Tighter Credit, Continued Focus on Compliance for F&I in 2017


DALLAS – EFG Companies, the innovator behind the award-winning Hyundai Assurance program, announced its 2017 predictions and recommendations for the automotive and powersports F&I market today. These insights, formed through thousands of conversations with the nation’s leading dealership principals and lenders, reflect an air of cautiousness for 2017. However, there are many options for retail automotive/powersport dealers, lenders, and F&I agents to successfully navigate an uncertain business climate for a prosperous 2017. For more information, visit http://bit.ly/EFGIntel

“Even though the election is over, we continue to see a murky forecast for the F&I market moving forward,” said John Pappanastos, President and CEO, EFG Companies. “Consumers clearly want a new – and at least partially online-buying process. This trend has significant impact for the F&I industry across retail and lending channels. We also expect to see credit tightening on the consumer side and a foreshadowing of reduced auto manufacturer incentives for dealers, which will impact their margins. Finally, we don’t believe federal regulatory oversight will diminish to the level that is being hyped. So, we strongly believe compliance will continue to challenge dealers and lenders. All that being said, we believe that the changes transforming the auto industry will create unique opportunities for dealers and lenders to leverage as they look to expand their business.”

Utilizing its 40-year history in the F&I industry, EFG Companies offers the following predictions for 2017:

Flat Volumes, Compliance, and Customer Retention for Retail Automotive

While the Consumer Financial Protection Bureau (CFPB) authority may be up in the air, dealers will need to stay the course on compliance for 2017. Remember, the Federal Trade Commission (FTC) has jurisdiction over dealers and its operations are not impacted by any potential changes within the CFPB. Analysts are predicting flat unit sales volumes, pushing dealers to maximize their investment by squeezing more profitability out of their F&I operations. Customer retention efforts will increase, prompting dealers to shore up their service drive and fixed operations to deliver the “luxury car” level of service. In addition, an influx of off-lease vehicles will increase used car inventory while putting pressure on pricing. Whether purchasing new or used, the customer will be king in 2017. John Stephens, Executive Vice President, Dealer Services

Return on Investment and Shorter Transaction Times Key for F&I Agents

With retail automotive dealerships feeling increased pressure, F&I agents will also experience a trickle-down effect to clearly demonstrate a return on investment for the F&I products they place at a dealership. Agents will also feel pressure to help dealers shorten transaction time and pivot their operations to support online transactions. Agents will closely monitor their own businesses to keep production levels high and begin focusing more on acquiring new dealership business. Adam Ouart, Vice President, Agency Services

Rising Interest Rates and Portfolio Evaluations Will Challenge Lenders  

Regardless of what happens with the CFPB, lenders will also need to stay the course. You don’t stop treating customers right on the off chance that the government might not see your good behavior. Increasing interest rates will pressure lenders to tighten lending standards and evaluate other options to protect their loan portfolio outside of APR and loan terms. The same can be said for credit unions and other lenders that offer auto loans directly to consumers. I expect more lenders to evaluate how consumer protection products can benefit them from the standpoint of differentiating their institutions from the competition, protecting their loan portfolio, increasing loan volume, and controlling compliance. In addition, dealers will re-evaluate their lender roster, confirming a broad spectrum of partners that specialize in different credit tiers, and help dealers meet their profitability goals. This will put pressure on lenders to evaluate their service model for dealerships and make adjustments to tackle mutual dealer and lender challenges.
Brien Joyce, Vice President, Specialty Services

Growth and Lender Challenges Continue for Powersports Dealers

Although unit sales fell in the second half of 2016, we anticipate volume will pick up in February when early income tax refunds arrive. There will be a slight growth in the powersports market overall in 2017, with dealers putting greater emphasis on increasing aftermarket income through the sale of F&I products. Lenders that remain in the powersports market will want to insulate their loans and may look to offering their own complimentary F&I products. As powersports dealers continue to be starved for lenders, up-to-date technology resources, and committed employees, they will pressure their vendors and product administrators to provide outside the box solutions for these obstacles, such as digital F&I services. Glenice Wilder, Vice President, Powersports

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CFPB Orders TransUnion and Equifax to Pay $23.1 Million for Deceptive Practices


WASINGTON, D.C. — The Consumer Financial Protection Bureau (CFPB) this week took action against Equifax and TransUnion, ordering the two credit reporting agencies and their subsidiaries to pay more than $17.6 million in restitution for deceiving consumers about the usefulness and actual cost of credit scores they sold to consumers. The two firms were also ordered to pay $5.5 million in fines to the regulator.

TransUnion will provide more than $13.9 million in restition to affected consumers, while Equifax will pay nearly $3.9 million in restition. The bureau is also ordering the companies to now truthfully represent the usefulness of their credit scores, provide the true cost of obtaining those credit scores and other services, obtain the express informed consent of consumers for services, and provide an easy way to cancel products and services.

“TransUnion and Equifax deceived consumers about the usefulness of the credit scores they marketed, and lured consumers into expensive recurring payments with false promises,” said CFPB Director Richard Cordray. “Credit scores are central to a consumer’s financial life and people deserve honest and accurate information about them.”

Chicago-based TransUnion and Atlanta-based Equifax are two of the nation’s three largest credit reporting agencies. The companies collect information like the borrower’s payment history, debt load, maximum credit limits, names and addresses of current creditors to generate credit reports and scores that are provided to businesses. Through their subsidiaries — TransUnion Interactive and Equifax Consumer Services — the companies also market, sell or provide credit-related products like credit scores, credit reports and credit monitoring directly to consumers.

Many lenders and other commercial users rely, in part, on these scores when deciding whether to extend credit to consumers, the bureau stated. Where the problem lies, however, is that TransUnion’s scores are based on a model from VantageScore Solutions LLC and Equifax’s scores are based on its own proprietary model — neither of which are typically used by lenders to make credit decisions.

The CFPB claims in its consent order that since at least July 2011, Equifax and TransUnion have been violating the Dodd-Frank Wall Street Reform and Consumer Financial Protection Act by deceiving consumers about the value of the credit scores they sold and deceiving consumers into enrolling in subscription programs.

The bureau also charged Equifax with violating the Fair Credit Reporting Act, which requires a credit reporting agency to provide a free credit report once every 12 months. And until January 2014, according to the bureau, consumers who got their report through Equifax first had to view Equifax advertisements. This, the bureau stated, is a violation of the FCRA, which prohibits such advertising until after the consumer receives their free report.

“Under the Dodd-Frank Act, the CFPB is authorized to take action against institutions engaged in unfair, deceptive, or abusive acts or practices, or that otherwise violate federal consumer financial laws,” the statement from the CFPB read.

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Four Trade Groups Ask Lawmakers to Instate Five-Person Board to Lead CFPB


WASHINGTON, D.C. —  Four associations representing 12,000 banks and credit unions submitted a letter to Senate leaders urging them to consider replacing the Consumer Financial Protection Bureau (CFPB)’s single-director structure with a five-person bipartisan commission next year.

The associations listed in the letter, which was sent on Wednesday to Senator Majority Leader Mitch McConnell (R-Ky.) and Minority Leader-elect Chuck Schumer (D-NY),  include the Consumer Bankers Association (CBA), the Credit Union National Association (CUNA), the Independent Community Bankers of America (ICBA), and the National Association of Federal Credit Unions (NAFCU).

“The CFPB is an independent regulatory agency that provides the sole director unprecedented authority over financial institutions, with minimal oversight,” read the letter, which was sent to Senate leaders on Wednesday. “As the sole decisionmaker, the director can promulgate regulations and levy enforcement actions that have sweeping and long-lasting effects on credit availability for consumers. The current single-director structure leads to regulatory uncertainty for consumers, industry, and the economy.”

The associations cited the recent federal appellate court decision in PHH Corp. v. CFPB D.C. Circuit Court Case as further evidence of the need to replace the bureau’s structure. In that case, the appellate court ruled the in favor of the mortgage company, deeming the the bureau’s single-director structure unconstitutional. The court also gave the president the power to remove the CFPB’s director at will, as well as direct the regulator’s activities.

“This result makes it even more apparent what a whipsaw effect the single-director model presents, inhibiting the ability for financial institutions to plan for the future, which in turn limits economic growth and hurts consumers,” the associations stated in their letter.

A five-person bipartisan board or commission would be more in line with other financial regulators and would provide a balanced and deliberative approach to supervision, regulation, and enforcement over financial institutions, the associations stated. A five-person commission would also be better suited to handle the bureau’s authority over rules and regulations within the financial industry, the letter added.

“As we approach the beginning of a new administration, it is crucial we finally put in place a governing structure at the CFPB to ensure it does not become a political weapon, something we are certain Senate leaders McConnell and Schumer can appreciate,” said CBA President and CEO Richard Hunt. “In addition, the governing structure of the agency makes the potential for abuse of power and political influence not only possible, but inevitable.”

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CFPB Supporters Ask Federal Appellate Court to Rehear CFPB Decision


WASHINGTON, D.C. — In an amicus brief sent Tuesday, a group of current and former members of Congress that supported the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 urged the federal appellate court that deemed the Consumer FInancial Protection Bureau (CFPB)’s structure unconstitutional to rehear the case.

Arguing that the court’s October decision fundamentally altered the CFPB, the group wants all 17 of the U.S. Court of Appeals for the District of Columbia’s judges to be present, not just the three judges that ruled that the CFPB’s single-director structure violates the federal Constitution.

The group consists of 21 current and former members of Congress, including Senators Elizabeth Warren (D-Mass, who is considered the architect of the CFPB, and Rep. Maxine Waters (D-Calif.). Every name listed in the brief were either sponsors of the Dodd-Frank Act, participated in drafting the law, serve or served on committees with jurisdiction over the federal financial regulatory agencies and the banking industry, or served in the leadership when Dodd-Frank was passed, the letter stated.

“The panel decision fundamentally altered the CFPB and hampered its ability to function as Congress intended,” the brief read. “It also called into question the constitutionality of other regulatory agencies with similar structural features. For those reasons alone, this case involved a question of ‘exceptional importance’ that merits reconsideration by the en banc court.”

The appelate court’s October decision gave the president the power to remove the CFPB’s director at will, as well as direct its activities. In its majority opinion, the court noted that CFPB Director Richard Cordray possessed “enormous power over American business, American consumers, and the overall U.S. economy.”

Granting the president the power to remove the director at will was the group’s biggest objection. In its letter, the group brought up the opposing side’s argument that by having removal restrictions, the president would be impeded in his ability to perform his constitutional duty. They argued, however, that the original provisions that allowed the director to be removable for cause, such as “’abusing [his] office[e],’ committing a ‘breach of faith,’ or ‘neglecting his duties or discharging them improperly,’” were enough to keep the director accountable, and gave the president enough power to remove the director if needed.

“The panel’s conclusion that the CFPB’s structure is unconstitutional flatly contradicts all of these decisions, and it does so principally because it views multi-member commissions as superior to agencies led by a single director,” the brief stated, in part. “The panel improperly elevated that policy judgment — one properly made by Congress — into a holding of constitutional law. That was plainly wrong, and consideration by the en banc court is thus warranted.”

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Pew: CFPB Small-Dollar Rule ‘Would Not Adequately Protect Borrowers’


WASHINGTON, D.C. — The Consumer Financial Protection Bureau’s proposed small-dollar lending rule would neither not adequately protect borrowers, nor address the risks created by the shift toward installment credit in the payday and auto title lending market, a new analysis concludes.

Conducted by Pew Charitable Trusts, the analysis outlines the reasons for the shift to installment lending, highlights the riskiest practices, and identifies actions the bureau can other policymakers can take to counter these harms. It also identifies four primary loan characteristics that harm consumers, including unaffordable payments, front-loaded fees, excessive durations, and unnecessary high prices.

“The CFPB proposed rule would require most small loans to be repayable in installments, which would represent a significant improvement, but that change alone is not enough to make these loans safe,” the nonprofit organization stated. “In 13 of the 39 states where they operate, payday and auto title lenders issue only high-cost, single-payment loans, but in the other 26, they are already making installment loans with annual percentage rates of 200% to 600%.

“These high-cost installment loans would still be permitted under the CFPB standards.”

The analysis identified four primary loan characteristics that harm consumers. They include unaffordable payments, front-loaded fees, excessive durations, and unnecessary high prices.

Pew’s brief, “From Payday to Small Installment Loans: Risks, Opportunities, and Policy Proposals for Successful Markets,” shows that unaffordable payments can lead to the same types of problems as convention payday loans, including frequent re-borrowing, heave use of overdrafts, and the need for a cash infusion to retire debt — issues the CFPB hoped to address when it proposed its rule this past June.

The brief also shows that large upfront origination fees “effectively penalize borrowers who repay early or refinance, while unreasonably long durations can double or triple borrowers’ costs.”

“Because payday and auto title lenders typically compete on location, customer service, and speed rather than on price, costs for these products, like conventional payday and auto title loans, are unnecessarily high, such as more than $1,000 in fees for a $500 loan,” the brief states, in part.

The brief also lists the following policy recommendations it says will address the four main challenges posed by installment loans:

  • Establish clear ability-to-repay standards, limiting loan payment to an affordable percentage of a borrower’s periodic income.
  • Allow only interest charges or monthly fees on the loan, and no other fees.
  • Require loan to have reasonable repayment durations.
  • Enact price limit and enable lower-cost providers, including banks and credit unions, to enter the small-dollar loan market.

“The payday loan market is rapidly shifting away from lump-sum lending toward installments, but 400% APR payday installment loans can be harmful, too,” said Nick Bourke, who directs Pew’s small-dollar loans project. “To protect consumers, the CFPB should add to clear product safety standards to its rule, such as limiting installment payments to 5% of a borrower’s paycheck. This safeguard would make exiting loans more affordable and enable banks to offer comparable small credit at prices six times lower than payday lenders, saving millions of borrowers billions of dollars annually.”

The CFPB’s notice of proposed rulemaking for small-dollar loans is open for public comment until Oct. 7. For more on the bureau’s proposal, click here.

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103 Lawmakers Call on CFPB to Eliminate Mandatory Arbitration


WASHINGTON, D.C. — On Wednesday, more than 100 members of Congress called on the Consumer Financial Protection Bureau (CFPB) to proceed with its effort to eliminate forced arbitration.

In two separate letters, 103 members of the House of Representatives and U.S. Senatepraised CFPB Director Richard Cordray for his agency’s proposed rule prohibiting mandatory arbitration clauses in finance contracts. They claim that eliminating such clauses will protect consumers from a process from which they rarely benefit.

“We wholeheartedly agree, and we offer our strong support for the CFPB’s proposal that rightfully recognizes the expansive harms of forced arbitration, prohibits the unfair use of class action waivers, and requires greater transparency concerning the arbitration of individual claims,” stated the letter signed by 38 U.S. Senators.

“The proposed rule is in the public interest and will protect consumers,” read the letter signed by 65 members of the House of Representatives. “As you know, Congress expressly granted authority to the bureau to research the impact of forced arbitration clauses in financial products and services, and based on this evidence, to promulgate a rule to prohibit or impose conditions on the use of forced arbitration if the bureau finds that it would be ‘in the public interest and for the protection of consumers.’ There is little doubt that the bureau’s proposed rule will serve these twin goals.”

The CFPB’s first proposed its rule on forced arbitration this past May, more than a year after the bureau issued its 728-page report on the use of pre-dispute arbitration clauses in consumer finance markets. The rule the bureau proposed stated that companies would be able to use arbitration clauses in finance contracts; however, use of such agreements could not bar consumers from being part of a class action lawsuit.

“There is overwhelming evidence that class-action waivers in financial products and services agreements undermine the public interest. Originally used primarily in commercial settings, forced arbitration clauses have proliferated in everyday contracts, and are now prevalent in financial services agreements,” stated the House letter. “By restricting class actions and class-wide arbitration in consumer contracts, these clauses enable corporations to avoid public scrutiny by precluding access to the courts.”

These waivers, the letter further stated, are particularly problematic in small, diffuse misconduct. These small claims are often the most harmful to consumers because they’re either too expensive for individuals to pursue or are so small consumers aren’t aware of the misconduct, lawmakers claimed.

“Forced arbitration shields corporations from accountability for abusive, anti-consumer practices, which only encourages unscrupulous business practices by allowing violations of the law to go unchecked. This comes at the expense of consumers, small businesses, and — just as importantly — law abiding businesses. Recognizing this, the CFPB has proposed a narrowly-tailored but important rule to restore access to our civil justice system and promote transparency within the forced arbitration system,” read the Senate’s letter.

But not all findings in the study support the lawmakers’ claims. For instance, the study showed that in many class action cases where the principal purpose of seeking class relief was to pressure a settlement, members of the class action got nothing or next to nothing. It also found that class action cases almost never make it to trial, while a significant percentage of arbitration proceedings actually resolve the disputes. The study also showed that arbitration is both faster and more economical than litigation.

“Late last year, the CFPB released a study on arbitration, which the bureau says shows that consumers are harmed by arbitration agreements as opposed to class action lawsuits. However, a careful review of the CFPB’s study demonstrates that the opposite is true …,” the American Financial Services Association wrote in a news brief published just prior to the CFPB issuing its proposed rule. “In 60% of class actions studied by the CFPB, consumers received no remuneration at all.

“In the 15% of cases where consumers received monetary compensation in class actions, they received an average of just $32.25, after waiting an average of 23 months,” the associated added. “In contrast, consumers who prevailed in arbitration agreements, on average, received $5,389. The real winners in class action lawsuits are plaintiff’s attorneys, who divided approximately $424 million in fees.”

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