Tag Archive | "Compliance"

Senate Committee Narrowly Confirms Trump’s Pick to Head BCFP


WASHINGTON, D.C. — Kathy Kraninger, current associate director for general government at the Office of Management and Budget (OMB), was approved by the U.S. Senate Committee on Banking, Housing on Urban Affairs to lead the Bureau of Consumer Financial Protection (BCFP) by a narrow 13-12 vote.

Thursday’s vote sends President Donald Trump’s pick to head the bureau to the full Senate, which has yet to schedule a confirmation vote. If confirmed, Kraninger, who has been criticized for her lack of experience in consumer financial protection but lauded as a free-market ally in discussions about the BCFP-creating Dodd-Frank Act, would replace her boss at the OMB, Mick Mulvaney, as the bureau’s acting director.

“At her hearing, Ms. Kraninger reiterated her dedication to fulfilling the bureau’s congressional mandate, ensuring all consumers have access to markets for consumer financial products and services that are fair, transparent, and competitive,” said U.S. Sen. Mike Crapo (R-Idaho), who chairs the committee. “Given her depth and diversity of public service experience, I have the utmost confidence that she is well prepared to lead the bureau in enforcing federal consumer financial laws, protecting consumers’ sensitive personal financial information, expanding access to credit, and making the bureau more transparent and accountable.”

Kraninger, who previously worked for the Department of Transportation and was an early hire at the Department of Homeland Security, has never held public office or run a major government office or federal agency. She joined the Trump administration from the U.S. Senate Appropriations Subcommittee on Homeland Security and has served as an aide for several Senate panels.

In her role at the OMB, Kraninger helps draft budgets for seven cabinet departments and 30 government agencies totaling $250 million. That includes budgets for all financial regulators, including the CFPB.

In written testimony submitted at her July 29 nomination hearing, Kraninger emphasized that “the bureau should be fair and transparent, ensuring its actions empower consumers to make good choices and provide certainty for market participants” — goals that struck a positive chord with the financial services industry.

“The American Financial Services Association supports the Senate Banking Committee’s approval of the nomination of Kathy Kraninger as the next director of the Bureau of Consumer Financial Protection and is pleased to see her nomination pass the Banking Committee,” said Chris Stinebert, the association’s president and CEO, in a statement issued to F&I and Showroom shortly after today’s vote.

“We urge the full Senate to confirm her nomination,” he added.

Kraninger’s lack of experience, however, continued to draw criticism up until the vote, with detractors speculating that her nomination is simply a way to keep Mulvaney connected to an agency he’s worked to rein in since his appointment as acting director on Nov. 24, 2017 — the day Richard Cordray formally resigned as head of the bureau.

Kraninger has also faced questions about her role in other actions taken by the Trump administration, including its policy of separating children from their parents crossing the border and its response to the hurricanes that ravaged Puerto Rico. Also mentioned prior to the vote were reports that Mulvaney plans to suspend examinations of lenders for compliance with the Military Lending Act.

“We created the Consumer Protection Bureau to fight for average Americans, and stand up for the people we serve,” said Sen. Sherrod Brown (D-Ohio), ranking member of the Senate Banking Committee. “If there was any doubt at how important this agency is — and how damaging it can be in the wrong hands — we don’t have to look any further than Mr. Mulvaney’s outrageous actions last week, announcing that the Consumer Protection Bureau is no longer going after shady lenders that cheat our servicemembers.

“Ms. Kraninger has not spoken up and said she’ll defend our troops from payday lenders that prey on them, which speaks volumes,” he continued. “Instead we get, “I cannot identify any actions that Acting Director Mulvaney has taken with which I disagree.”

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EEOC Files Sex Bias Suit Against Ferman’s Tampa Harley-Davidson


TAMPA, Fla. — The U.S. Equal Employment Opportunity Commission (EEOC) is suing Ferman Automotive Group and Cigar City Motors, which operates Tampa Harley-Davidson and other car and motorcycle dealerships there, for discriminating against a female employee.

In its lawsuit filed on Monday in the U.S. District Court for the Middle District of Florida, Tampa Division, the EEOC alleges that Ferman violated federal law by failing to promote a female manager to general manager nine times, even though she had expressed interest, was equally or more qualified than the male candidates promoted, and was recommended to the role in at least two instances by outgoing general managers.

“The EEOC has long fought to protect women from hitting the glass ceiling in all professions and from the outdated stereotypes about women in leadership which continue to persist,” said EEOC’s Tampa Field Director Evangeline Hawthorne. “EEOC will continue to enforce the law to ensure that employers afford women the same promotional opportunities as men.”

The lawsuit also alleges that Ferman required the female sales manager, Virginia Duncan, to participate in a “mentorship” program to be eligible for promotion. The male job candidates promoted to the positions did not have the same requirement.

The EEOC filed its lawsuit after first attempting to reach a pre-litigation settlement through its conciliation process. The complaint seeks monetary and injunctive relief to address the group’s alleged discriminatory practices. Duncan and the EEOC are also asking the court to require Ferman to implement programs that offer equal opportunities for advancement to women and implement policies that prohibit gender-based discrimination.

“Although Title VII was passed more than 50 years ago, women nationwide continue to be passed over for promotion because of their sex or gender. This contributes to the gender wage gap and affects a woman’s ability to provide for themselves and their families,” said Robert E. Weisberg, regional attorney for the EEOC’s Miami District Office. “The law is clear — employers cannot discriminate on the basis of sex and they must provide a level playing field for all employees to compete for management positions.”

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FTC Charges Arizona Group With Falsifying Incomes on Consumer Credit Apps


WASHINGTON, D.C. — Three weeks after announcing the completion of a seven-state sweep regarding compliance with its Used Car Rule, the Federal Trade Commission announced on Wednesday it has charged a group of four dealerships with a range of illegal activities, including falsifying consumers’ income and down payment information on credit applications and misrepresenting financial terms in vehicle advertisements.

According to the regulator, this was the FTC’s first action alleging income falsification by dealerships. Its complaint names Richard Berry as a defendant and Linda Tate as a relief defendant. They operate a group of four dealerships in Arizona and New Mexico, near the border of the Navajo Nation.

“Buying a car is one of the biggest purchases consumers make. When consumers tell an auto dealer how much they make and how much they can pay upfront, the dealer can’t turn those facts into fiction,” said Andrew Smith, the FTC’s recently confirmed director of its Bureau of Consumer Protection. “The FTC expects auto dealers to be honest with consumers from the first advertisement to the final purchase.”

Since at least 2014, according to the complaint, Tate’s Auto allegedly increased its sales by falsifying consumers’ monthly income and down payments on credit applications and finance contracts submitted to finance sources. The four dealerships named in the complaint are Tate’s Auto Center of Winslow, Tate’s Automotive, Tate Ford-Lincoln-Mercury, and Tate’s Auto Center of Gallup.

The regulator charged that, during the sales process, Tate’s Autos asked consumers to provide personal information — including their name, address, and monthly income — and told them the information would be submitted to financing companies. But instead of using consumers’ actual information, the complaint alleges, Tate’s Auto falsely inflated the numbers, making it appear that applicants had higher monthly incomes than they really did. The dealerships also allegedly inflated the amount of a customer’s down payment.

“We’re not talking about nickel-and-dime discrepancies,” wrote Lesley Fair, senior attorney with the FTC’s Bureau of Consumer Protection, in an Aug. 1 blog post on the FTC’s website. “According to just one of the examples in the complaint, a consumer told Tate’s she had a fixed monthly income of about $1,200, but a Tate’s staffer allegedly inflated it to $5,200 in the paperwork.

“Wouldn’t consumers spot the false information? Not necessarily,” Fair continued. “The complaint charges that the defendants often used tactics that prevented people from reviewing the documents. Tate’s personnel allegedly rushed some consumers through the process; had them fill out forms over the phone or in places like grocery store parking lots or restaurants; or altered the documents after consumers signed them.”

The FTC charged that consumers, many of whom are members of the Navajo Nation, were approved for financing based on the false information the group’s dealerships provided. These consumers, the regulator further alleged, defaulted at a higher rate than qualified buyers.

The FTC also charged in its complaint that Tate’s Auto’s advertising deceived consumers about the nature and terms of financing or leasing offers. For example, the group allegedly advertised discounts and incentives without adequately disclosing limitations or restrictions that would prevent many customers from qualifying for the offers.

The regulator also alleges that Tate’s Auto’s social media ads violated the FTC Act, the Truth in Lending Act, and the Consumer Leasing Act by failing to disclose required terms. The FTC is now seeking an injunction barring the defendants from such practices in the future.

“One YouTube ad claimed the featured car ‘can be in your driveway for only $169 per month,’” Fair wrote in her blog. “In fact, consumers can’t buy that car for the advertised monthly payment. That amount applies only to a lease. What’s more, the FTC says the ad didn’t clearly disclose that to get that monthly payment, consumers must shell out $2,899 plus other fees at lease signing.

“Then there’s the online ad where the company touted an ‘incentive’ discount of $5,250,” Fair continued. “But buried behind multiple hyperlinks was the fact that the discount was available only to consumers who trade in a 1995 or newer vehicle or terminate a lease from another car company 30 days before or 90 days after delivery.”

The FTC’s complaint charges that Berry, acting as owner of the four dealerships, formulated, directed, controlled, had the authority to control, or participated in Tate’s Auto’s allegedly illegal conduct. The FTC also charges that Tate received hundreds of thousands of dollars from the other defendants, including funds directly connected to the alleged unlawful conduct.

“The complaint charges that over time, others in the industry got wise to what Tate’s was doing,” Fair wrote in her blog. “In December 2015, a major financing company that regularly worked with Tate’s conducted a review. The company reported inflated income on 17.9% of applications from Tate’s Auto Center of Gallup, 37.5% of applications from Tate’s Auto Center, 38.7% of applications from Tate’s Nissan Buick GMC, and 44.8% of applications from Tate’s Auto Center of Winslow.”

The Commission vote authorizing the staff to file the complaint was 5-0. The complaint was filed in the U.S. District Court for the District of Arizona.

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Powerbooking and Its Evil Cousins


In my days with the Florida attorney general’s office, I was the “car guy.” I received hundreds of written complaints every year regarding vehicle transactions. One of my most amusing complaints — but an instructional one as well — was the one I received from a woman who had returned her leased sedan. Several months after the return, she received a letter from the leasing company, which assessed her $2,100 for a missing moonroof.

Her lease did indicate that a moonroof was one of the options on the vehicle. However, upon review of the subpoenaed deal jacket, there was no evidence of a moonroof. Of course, even before I perused the deal jacket, I was quite confident that this poor woman had been powerbooked.

I contacted the leasing company and the first two clerks told me that she owed the money for the missing moonroof. I was extremely amused by their response as I posed the question, “Do you honestly think that this woman would lease a vehicle and weld the roof closed?” Incredibly, the two clerks both said yes. Ultimately, I spoke with their general counsel, who understood the absurdity of the situation and waived the excessive wear charges. And, of course, the dealer had to pay damages to the consumer.

I was reminded of this incident recently by a conversation I had with a dealer consultant who also works with nearprime and subprime financing sources. He told me that he has been reviewing numerous transactions recently and concluded that as many as 70% of these vehicle sales were powerbooked. He also said he believed this nefarious practice is reemerging in the industry. If this consultant is correct, certain finance managers are challenging fate.

If finance managers don’t believe that they can face criminal charges over these infractions, they would be poorly advised. I prosecuted a case which led to a finance manager being incarcerated for eight years. He, too, didn’t think that he would ever be caught, tried, and sentenced.

Powerbooking Defined

To be clear, the term “powerbooking” refers to the practice by some dealers of misleading the financing source about alleged added options to the vehicle, which is the subject of the intended assignment of a retail installment sale contract or lease contract. With the fictitious addition of equipment and accessories to the vehicle, the financing source will pay more for the contract, since the asset is theoretically worth more. Both new and used vehicles can be the subject of powerbooking.

Furthermore, powerbooking is illegal, unlawful, deceitful, fraudulent, unfair, larcenous, and a material breach, among other accurate assertions. Finance managers could face time in prison if they engage in this practice.

In order to underwrite these transactions, financing sources require from the dealer a description of the vehicle including a posting of the accessorization. The full value is then ascertained by the financing source. Obviously, the inclusion of accessories such as a navigation system, remote starter, or a premium sound system will increase the value of the vehicle which will be the basis of the amount advanced by the underwriter.

This fraud may affect both the underwriter and the consumer. In the case of the underwriter, it is accepting an assignment of a retail contract or lease of a vehicle which has nonexistent accessories. It is not getting what it bargained for.

Consumers are not always careful in reading the documents which they sign at the dealership. They may sign a buyer’s order, for example, which lists these nonexistent accessories. Hence, they are victims of both a theft and a fraud.

Civil and Criminal Law Charges

Powerbooking is a pernicious act in the industry and the penalties can be severe. It may be instructive to understand the relevant law.

The great distinction between civil and criminal law remedies is the loss of one’s liberty. Someone who is convicted of a criminal infraction may go to jail for a specified period of time. Generally, if one is incarcerated for less than a year, it is a misdemeanor, whereas if one is incarcerated for more than a year, it is considered a felony.

This distinction also includes the severity of the crime, which, in these cases, would mean the amount of money involved. For example, if it is a $300 fraud, it may be a misdemeanor; a $1,000 fraud might constitute a felony. In other words, if a finance manager powerbooks a transaction for $1,000, he could spend a year in jail, depending upon that state’s criminal code.

Relevant civil charges for powerbooking include civil theft, civil fraud, civil RICO (defined below), material breach of contract, recourse, and a violation of the unfair and deceptive trade practices act. Suffice it to say that the standard of proof for a civil allegation is less than the standard is to prove a criminal violation.

Relevant criminal charges for powerbooking include theft, fraud, and RICO. In proving a criminal infraction, the prosecutor has a much heavier burden than in a civil matter.

Depending upon who prosecutes the case will determine which of these charges or allegations may be advanced. For example, the underwriter may advance all of them except RICO, whereas the attorney general, state attorney, or district attorney could advance RICO, theft, and fraud. UDAP (defined below) is generally prosecuted by the state attorney general.

In both criminal and civil cases, the finance manager must have the requisite intent and must complete the act. In other words, the finance manager must have purposely performed the act, although gross negligence can rise to being considered “intent.” Finance managers should understand the following terms and their definitions as they relate to them:

  • Material breach of contract: If a finance manager significantly fails to perform a key term or condition under the contract, which would allow the underwriter to sue the dealer for various monetary damages and termination of the contract, it is characterized as a material breach. Powerbooking is such a breach since the financing source is not receiving the vehicle with all the indicated options as promised.
  • Recourse: The right of the underwriter to seek the complete or partial return of any advanced funds.
  • Fraud: A known false statement, or a material omission, by the finance manager intended to mislead a consumer to rely upon that statement or omission.
  • Theft: If a finance manager permanently or temporarily takes a consumer’s property or money it is a theft. Theft includes larceny and the crime of false pretenses.
  • RICO: RICO stands for the Racketeering Influenced Corrupt Organizations Act. It allows for various enhanced penalties including forfeiting all the dealer’s inventory and assets. It is a grave charge.
  • UDAP: The Unfair and Deceptive Trade Practices Act allows for penalties, damages, and injunctions. It is the favorite statute of the state attorney general.

The Evil Cousins of Powerbooking

Offering and selling ancillary products to consumers as part of the overall vehicle transaction can be extremely beneficial to the public. In the vast majority of cases, the finance manager executes all the proper documents and the third-party provider of the product, such as the GAP or a service contract provider, is appropriately remunerated and the contracts are delivered.

However, in some cases, the finance manager never pays or notifies the third party and pockets the premium or payment. In the alternative, the consumer is misled into believing in a nonexistent third-party provider. The finance manager hopes that the consumer never attempts to utilize the benefits of the product in these cases or discharges the work at the dealership.

A further dishonest related practice is adding these types of ancillary products without the consumer being informed of their existence. This could rise to being payment packing in some cases.

All these evil cousins can be both civil and criminal violations.

It is said that 90% of all attorneys give the other 10% a bad name. The reverse could be stated concerning the car business: 10% of the dealers give 90% of the dealers a bad name. If a dealer is identified as having a finance manager on his staff who powerbooks, he immediately becomes a member of that 10% — an unenviable position.

Wise dealers should be monitoring their deal jackets for any of these practices and proceeding appropriately with their legal counsel should they be found. And finance managers who engage in these practices are hereby warned and should cease and desist.

Govern yourselves accordingly.

 

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FTC, 12 Partner Agencies Conduct Used Car Rule Compliance Sweep


WASHINGTON, D.C. — The Federal Trade Commission, working jointly with 12 partner agencies in seven states, conducted the first compliance sweep of car dealerships since its amended Used Car Rule took effect earlier this year, the regulator announced today.

The sweep was conducted in 20 cities nationwide between April and June 2018. According to the FTC, inspectors found Buyers Guides on 70% of the more than 2,300 vehicles inspected, with almost half of those displaying the revised Buyers Guide. Of the 94 dealerships inspected, 33 had the revised Buyers Guide on more than half of their inventory, and 14 had revised Buyers Guides on all of their used cars.

“Why check things out now? Well, dealers were required to start using the new version of the guide on January 28, 2018,” wrote Colleen Tressler, a consumer education specialist for the FTC, wrote in a blog posted today on the regulator’s website. “And here’s what we found. Of the more than 2,325 vehicles inspected, almost half had the revised Buyers Guide. Dealers not displaying the revised guide received letters warning them to bring their dealerships into compliance.”

Under the amended Used Car Rule, which took effect on Jan. 28, 2018, dealers must display a revised window sticker, or Buyers Guide, on each used car they offer for sale. The revised guide changes the description of an “As Is” sale, places boxes on the face of the guide dealer can check to indicate whether a vehicle is covered by a third-party warranty and whether a service contract may be available, and adds airbags and catalytic converters to the Buyers Guide’s list of major defects that may occur in used vehicles, among other changes.

Dealers who fail to comply face penalties of up to $41,484 per violation. State and local law enforcement agencies also enforce the recently amended rule.

Over the coming weeks, according to the FTC, dealerships that were not displaying the revised Buyers guide can expect follow-up inspections to ensure they have brought themselves into compliance with the amended rule.

The FTC, along with its partner agencies, inspected dealership in the following areas: 1) Burbank, North Hollywood, Richmond, San Bruno, San Jose, San Pablo, and Van Nuys, California; 2) Jacksonville, Florida; 3) Chicago, Illinois; 4) New York, New York (Queens); 5) Brooklyn Heights, Cleveland, East Cleveland, and Cleveland Heights, Ohio; 6) Arlington, Dallas, and Grand Prairie, Texas; and 7) Lakewood, Puyallup, and Tacoma, Washington.

Agencies involved include the California Department of Motor Vehicles Inspection Division; district attorney’s offices in Contra Costa County, Los Angeles County, Santa Clara County, San Mateo, Calif.; the Florida Bureau of Dealer Services; the Cuyahoga, Ohio, County Department of Consumer Affairs; the Ohio Bureau of Motor Vehicles; the City of Chicago Department of Business Affairs and Consumer Protection; the New York City Department of Consumer Affairs; the Texas Department of Motor Vehicles; and the Washington State Office of the Attorney General.

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CFPB Official Who Sued Trump Resigns, Drops Suit


WASHINGTON, D.C. — Leandra English, who former Consumer Financial Protection Bureau Director Richard Cordray’s picked to succeed him as acting director, is ending her court battle to unseat Mick Mulvaney as acting head of the bureau and her employment with the embattled regulator.

On Friday, English’s attorney, Deepak Gupta, posted a statement on Twitter that English is stepping down from her role as deputy director and that she plans to file court papers today to bring her litigation over the leadership of the CFPB to a close following President Trump’s nomination of Kathy Kraniger as permanent director of the agency.

“I will be stepping down from my position at the Consumer Financial Protection Bureau early next week, having made this decision in light of the recent nomination of a new director,” the statement, attributed to English, reads. “I want to thank all of the CFPB’s dedicated career civil servants for your important work on behalf of consumers. It has been an honor to work alongside you.”

On Monday, Mulvaney announced that Brian Johnson, who currently serves as the bureau’s principal policy director, will assume the bureau’s second leadership post as acting director. Prior to his appointment to the CFPB, Johnson served as senior counsel to Rep. Jeb Hensarling (R-Texas) at the House Financial Services Committee.

Mulvaney described Johnson as an “indispensable advisor,” noting that he was the first person he hired at the bureau. “Brian knows the bureau like the back of his hand. He approaches his role as a public servant with humility and unsurpassed dedication,” Mulvaney said in a statement released late Monday. “His steady character, work ethic, and commitment to free markets and consumer choice make him exactly what our country needs at this agency.”

When Cordray resigned on Nov. 24, 2017, he elevated English, his former chief of staff, to deputy director — a move that established her as acting director until the Senate confirms Trump’s permanent appointee.

Hours after Cordray’s announcement, Trump appointed Mulvaney as acting director, citing his authority under the Federal Vacancies Act (FVRA) of 1988. English filed suit two days later (Nov. 26) to block the appointment, arguing that she was the rightful acting director due to a successor statute in the CFPB-creating Dodd-Frank Act.

English’s attorneys also questioned whether allowing Mulvaney, who once characterized the bureau as a “sick joke,” to continue serving as a White House official would compromise the bureau’s independence. The argument was backed by the former lawmakers who championed the CFPB-creating Dodd-Frank Act.

“That was our intent, to strip this away from the politics of the moment, to give consumers the sense of confidence that there was one place here — when it came to their financial services — [where] there would be people watching out for them, regardless of political party or partisanship,” said former Sen. Chris Dodd during media call this past November.

On Nov. 29, three days after filing suit, English’s request for a restraining order to block Mulvaney’s appointment was denied by U.S. District Judge Timothy J. Kelly. English’s attorneys then filed an amended complaint on Dec. 6, 2017, requesting a preliminary injection to remove Mulvaney as acting head of the agency. That request was also denied by Kelly, a ruling set the stage for English’s appeal.

“The Court finds that English is not likely to succeed on the merits of her claims, nor is she likely to suffer irreparable harm absent the injunctive relief sought,” Judge Kelly wrote in his 46-page decision. “Moreover, the balance of the equities and the public interest also weigh against granting the relief. Therefore, English has not met the exacting standard to obtain a preliminary injunction.”

Kelly’s ruling set the stage for English’s appeal, on which a three-judge federal appeal panel in Washington, D.C., has yet to issue a ruling.

On June 19, Trump nominated Kraninger, a White House budget official who works under Mulvaney and served as an aide to several Republican senators, to serve as the next director of the bureau. The announcement came a week before Mulvaney’s interim term was set to end.

“I have never worked with a more qualified individual than Kathy. Her commitment to the law, to protecting consumers and to defending what works in our vibrant financial services sector, all while respecting hard-working taxpayers who pay their bills and play by the rules ensures that the bureau will be in good hands throughout her term,” Mulvaney said in a statement issued the same day Kraninger’s nomination was announced. “Vigorous independence, sharp-as-a-tack intelligence, and simple, old-fashioned, Midwestern humility make her the ultimate public servant. I know that my efforts to rein in the bureaucracy at the Bureau of Consumer Financial Protection to make it more accountable, effective and efficient will be continued under her able stewardship.”

Critics like Democratic Sen. Elizabeth Warren, however, have questioned Kraninger’s qualifications for the job because of her lack of experience in financial regulation or consumer protection.

email hidden; JavaScript is required Warren, who considered the architect of the CFPB, tweeted the day Kraninger’s appointment was announced. “That’s bad news for seniors, servicemembers, students — and anyone else who doesn’t want to get cheated. And it gets even worse.”

As for English’s Friday announcement, Warren said the following in a statement: “From the earliest days of the CFPB, Leandra has directed her passion and formidable skills to building a strong, professional agency that stands up for consumers. I’m grateful for her service and wish her the best in her future endeavors.

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