Tag Archive | "Compliance"

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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EFG Companies: Dealers Must Embrace Industry Paradigm Shift

DALLAS, Texas — Staffing and customer engagement models are the top issues impacting the future health of the retail automotive industry, EFG Companies President and CEO John Pappanastos said today.

The F&I product provider’s chief executive delivered his comments as part of a state of the industry address the company posted on its website. Pappanastos encourage dealership principals and senior managers to quickly address those issues or risk becoming a dinosaur in today’s rapidly changing consumer car-buying mode, noting that digital buying habits, millennial and Gen Z consumers, and women are forcing industry change.

According to the National Automobile Dealers Association’s 2017 Workforce Study, retail automotive suffered from a 43% turnover rate — up two points from 2016. Additionally, the automotive industry experienced an 88% attrition rate among female new hires, and a below average rate of millennial new hires when compared to other industries.

Pappanastos said many retail automotive businesses lack a comprehensive plan to become an employer of choice, and instead rely heavily on traditional “bell-to-bell” hours, commission-only payment plans, and limited training. He urged them to immediately develop a strategy for hiring, training, and promoting the best and brightest employees to operate in a world where consumers are demanding a more digital process with a better customer experience.

The executive noted that a single poor hiring decision in F&I can easily result in up to $75,000 in lost profit due to onboarding costs and lost production, adding that the retail automotive industry’s focus on daily operations also hampers leadership development and obscures the growth path for millennial hires who, as a group, require opportunities for promotion.

The F&I product executive also touched on recent research from Cox Automotive, which showed that 80% of consumers want to complete at least half of the car-buying process digitally. He also cited a 2018 Deloitte study showing that “dealers create a fragmented and inconsistent approach to the customer,” which leads to inefficient customer contact, inconsistent messaging, and ultimately failure to sell and build loyalty.

“While I realize change is difficult, dealership principals must incorporate greater consumer-facing digital platforms into their dealerships,” said Pappanastos, adding that hiring employees who are experts in online customer engagement and digital sales approaches represents one solution. “Failure to do so will result in lost revenue. We must remember the old adage of ‘meet the customer where they are.’ And today’s customer is clearly online.”

Pappanastos also encouraged dealerships not to lose sight of compliance. “Job skills are easy to assess. What’s difficult is finding candidates who have solid character,” the executive said. “During these tumultuous times, dealerships must maintain a high degree of integrated compliance. The resulting fines, and damage to reputation, can result in significant business loss due to very clear and public online postings and reviews.”

Pappanastos remarks during his state of the industry address focused on the future health of the retail automotive industry and sounded a wakeup call to dealership principals to quickly embrace changing consumer buying preferences. He also encouraged future millennial and Gen Z employees to seek out careers in retail automotive, noting that exciting changes and their opportunity to make industrywide impact.

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House Approves Resolution to Repeal CFPB’s Dealer Participation Guidance

WASHINGTON, D.C. — The U.S House approved on Tuesday its version of the resolution of disapproval of the Consumer Financial Protection Bureau’s dealer participation guidance. The resolution now heads to President Trump’s desk, where it is expected to be signed.

The 234-175 vote was cast largely along party lines, although 11 Democrats crossed the aisle to approve the resolution. One Republican, Ileana Ros-Lehtinen of Florida, voted against the resolution, which, when signed by President Trump, will bring an end to the automotive retail and finance industry’s five-year effort to get the bureau’s controversial March 2013 guidance rescinded.

“This vote indicates that American consumers have spoken to their elected representatives to say they want competitive pricing on vehicle loans,” said Chris Stinebert, president and CEO of the American Financial Services Association, in a statement issued by the lender trade group. “We are an industry that competes for consumers’ trust as well as their business while helping them acquire vehicles that support their transportation needs.”

The vote comes less than a month after the U.S. Senate voted 51-47 to approve its version of the resolution and five months after the Government Accountability Office (GAO) said Congress has the power under the Congressional Review Act (CRA) to repeal the bureau’s dealer participation guidance.

Under the CRA, both houses must approve resolutions of disapproval by a simple majority and receive the president’s signature to kill a regulation. When the latter happens to S.J. Res. 57, which was introduced in March by Sen. Jerry Moran (R-Kansas), it’ll mark the first time the CRA has been used on a rule that has been in effect for several years. And once repealed, the CRA prohibits the reissuance of a rule in substantially the same form unless authorized by Congress.

The CFPB alleged in its five-page fair lending guidance that bank policies which allow auto dealers to mark up interest rates on retail installment sale transactions as compensation for services rendered create a significant risk of unintentional, disparate impact discrimination. It also warned lenders active in the indirect auto finance channel that they would be held liable for unlawful, discriminatory markups.

The bulletin goes on to state that lenders operating in the indirect auto finance channel “should take steps to ensure that they are operating in compliance with the [Equal Credit Opportunity Act] and Regulation B as applied to dealer markup and compensation policies.” It then listed a variety of steps and tools they could employ to address the bureau’s stated fair lending risks, including “eliminating dealer discretion to markup buy rates and fairly compensate dealers using another mechanism, such as a flat fee per transaction, that does not result in discrimination.”

Auto industry trade groups have argued that the bureau used its guidance to indirectly regulate the activities of dealers, which are mostly exempt from the bureau’s oversight under the Dodd-Frank Act. They also claimed the bureau was aware its methodology for determining disparate impact and potential harm to protected classes was flawed and prone to overestimation, yet pushed forward with claims of discrimination that resulted in enforcement actions that imposed millions of dollars in fines on auto finance sources, including Ally Financial.

The guidance also caused several finance sources, including BB&T and BMO Harris, to switch to a flat-fee compensation model. BB&T switched back to a dealer spread compensation plan earlier this year, while BMO switched to a three-tiered flat-rate model last summer.

The guidance was also behind consent orders the CFPB entered into with Fifth Third Bank, Toyota Motor Credit Corp., and American Honda Finance Corp regarding their dealer markup policies. As a result of those orders, the bank and two captives agreed to lower their markup caps to 1.25% and 1%. Fifth Third’s consent order, however, is set to expire this September, while Toyota Motor Credit’s and Honda Finance’s consent orders are set to expire in February 2019 and July 2020, respectively. The three finance sources yet to say whether they’ll return to a dealer participation model when they do.

“There’s no question that this is a rule masquerading as guidance. The CFPB never submitted the guidance to the GAO. They could have done so. Had they done so the 60-day clock would have run, we wouldn’t be here,” David Regan, executive vice president of legislative affairs for the National Automobile Dealers Association (NADA), said last week during a press briefing. “They chose not to submit that to Congress because they did not want the additional exposure to public notice and comment. Within just a few weeks of the guidance being issued in March of 2013, the congressional inquiries started pouring in asking very specific questions about the methodology that we now know was flawed. And yet, the agency repeatedly refused to respond to these questions.”

Congress has attempted to kill the bureau’s guidance through the legislative route. In November 2015, the House of Representatives approved the Reforming CFPB Indirect Auto Finance Guidance Act by a 332-96 vote. The bill, however, was not acted upon by the Senate before the end of the 114th Congress.

Last March, Sen. Toomey asked the GAO whether the CFPB’s guidance on dealer participation falls under the CRA. The agency delivered its answer this past December, writing in a letter to Toomey that it did.

When it initially issued its guidance, the bureau argued that because it had no legal effect on regulated entities, the CRA does not apply. The GAO, however, stated in its response to Toomey’s request that the bulletin “fits squarely within the Supreme Court’s definition of a statement of policy,” because it provides information on the manner in which the bureau planned to exercise its discretionary enforcement power.

And according to the GAO, the CRA “establishes special expedited procedures under which Congress may pass a joint resolution of disapproval that, if enacted into law, overturns the rule.” In a statement posted on its website just after the GAO delivered its answer, Sen. Toomey said he intended “to do everything in my power” to repeal the bureau’s guidance under the CRA.

“The joint resolution is a measured response to the CFPB’s attempt to avoid congressional scrutiny by issuing ‘guidance’ that imposed a new policy without necessary procedural safeguards,” said Peter Welch, president and CEO of the NADA, in a statement issued following the House vote. “Enactment of S.J.Res. 57 will help ensure every consumer’s right to get a discounted loan in the showroom.

“Every customer deserves to be treated honestly and fairly when purchasing or financing a car or truck, and there is no room for discrimination of any kind, period,” he continued. “We continue to encourage all local dealerships to take up NADA’s voluntary fair credit compliance program, which is based on a U.S. Department of Justice model. It helps eliminate fair credit risk in auto lending while ensuring a competitive marketplace.”

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