Auto dealers and lenders keep tabs on CFPB again

LAS VEGAS — The federal Consumer Financial Protection Bureau has once again become more assertive, with auto lenders and their associations closely monitoring the agency’s activities.

Among the concerns of the new director of the CFPB, Rohit Chopra, is the rising cost of vehicles. This is mainly caused by a shortage of inventory, which in turn is caused by a global shortage of microchips.

Inventory shortages have led some auto dealers to charge thousands of dollars above MSRP for popular vehicles. This caught the attention of the CFPB, says Celia Winslow, senior vice president of the American Financial Services Assn.

“The CFPB wants to lower vehicle prices, but it has no control over dealerships, so it’s focused on car lending,” she told the annual vehicle finance conference. ‘AFSA, organized in conjunction with the National Automobile Dealers Assn. annual convention.

For auto lenders, such scrutiny potentially includes fees, repossessions, loan-to-value ratios (the amount financed relative to the price of a vehicle) and interest rates, she tells Wards.

In a presentation on federal auto loan issues, Winslow (photo below left) tells conference attendees that lenders who, for whatever reason, may choose to challenge the bureau on a particular issue that becomes untenable to them have no choice but to sue.

Litigation could be the only ultimate solution, she says, without specifying what potential future CFPB action could trigger this.

Still, she notes Administrator Biden. overall is not particularly focused on auto loans. He has other issues to deal with, including Russia’s war on Ukraine, inflation, COVID and the upcoming congressional elections, Winslow said.

But for lenders watching Washington’s regulatory activities, “CFPB is where it’s at,” she says.

The office, formed in 2011, is a product of the Dodd-Frank Act that Congress created following the collapse of the subprime financial sector of that era.

From the start, lenders and auto dealers worried about the CFPB because progressive Elizabeth Warren, before becoming a U.S. senator, was instrumental in founding the office and served as its first acting director.

Warren adamantly opposed the practice of dealerships adding one or more percentage points to indirect auto loans. Warren saw this as a scam.

Her detractors saw her as polarizing. President Obama, faced with Republican pressure, chose not to make her the first director of the CFPB.

That job instead went to Richard Cordray, a former attorney general from Ohio. Under his leadership, the office cited alleged disparate loans that were unintentionally racially and ethnically biased.

Many lenders and their associations, including the AFSA, have questioned the accuracy of a CFPB disparate lending analysis that used people’s postcodes and surnames to conclude that biased lending was occurring.

For a time at the time, dealers and lenders viewed the CFPB as an almost existential threat.

But then Kathy Kraniger became a director under the Trump administration. President Trump was not a fan of the CFPB. During Kraniger’s tenure, the office became less crossover and more lender-friendly. Cordray had resigned in 2017, accusing Trump of undermining him and the office.

President Biden named Chopra to lead the office in October. He contrasts sharply with Kraniger.

Chopra is more of a determined crusader than even Cordray was, Winslow says. “He’s more active.”

He is a particular opponent of payday lending practices, which do not affect lenders and car dealerships. Nonetheless, Winslow says he’s someone both of these groups should watch.

Steve Finlay is a retired editor of Wards. He can be reached at [email protected].

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