Auto Note Buyer – CFPB Subpoenas Lenders over F&I Products as Justice Department Ramps Up Auto Financing Investigations
WASHINGTON, D.C. — Extended warranties and other products appear to be the next regulatory target in the F&I office, according to a report by the Wall Street Journal.
The report indicated officials familiar with a Consumer Financial Protection Bureau investigation said the agency recently issued subpoenas to U.S. auto lenders over the sale of extended warranties and other financial products such as gap insurance.
Though such products are legal, the report noted that regulators are probing whether terms and prices are adequately disclosed. The CFPB has pursued a similar strategy with credit-card companies, fining them over the use of deceptive marketing practices to sell products such as identity-theft protection.
The Wall Street Journal went on to report that the Department of Justice is also taking a great interest in the work completed at stores’ F&I offices.
The report cited comments by Jon Seward, deputy chief of the department’s housing and civil-enforcement section, at a panel discussion at George Mason University on Thursday. Seward reportedly mentioned the Justice Department is examining dealerships that make their own loans to customers with poor credit and charge higher rates — buy-here, pay-here stores.
Seward declined further comment, according to the Wall Street Journal.
This week’s developments continue the recent intensifying of regulatory examinations of the auto financing industry, a trend that started in March when the CFPB offered guidance about indirect auto lending.
Legal experts and industry associations have questioned the CFPB‘s intentions and methods, especially revolving around the theory of disparate impact of discrimination. David Westcott, current chairman of the National Automobile Dealers Association, reiterated his concerns in recent commentary posted on NADA‘s website.
“In March, the CFPB released a bulletin that claims indirect lending through dealerships may result in minorities paying more for auto loans. Dealers are exempt from CFPB oversight, but auto lenders are not,” Westcott said.
“So the bureau’s guidance could drastically change how auto finance sources compensate dealers for arranging auto loans. Keep in mind, no one is accusing anyone of intentional discrimination,” he continued.
Westcott acknowledged if there are problems in the F&I office that result in discrimination, changes should be made.
“If the auto finance system can potentially result in minorities paying more for credit than non-minorities in the same credit tier, then it is considered unintentional discrimination. And the system needs to be addressed,” he said.
“But we have no idea how the CFPB concluded disparate impact exists in today’s marketplace,” Westcott went on to say. “Disparate impact can only be proven through a statistical analysis of past transactions, but the CFPB has not revealed how it is conducting its analysis or what data it’s relying upon.”
With that element in mind, Westcott made a recommendation.
“Before this consumer-friendly model is disrupted, the CFPB should explain how it is conducting its analysis,” he said.