My Compliance Lawyer is Crazy
Dealers and finance companies call our law firm wondering how they can be prepared for the new federal Consumer Financial Protection Bureau (CFPB). When we tell them they must have written policies and procedures evidencing compliance with federal and state consumer financial protection laws with scheduled employee training on those policies and procedures, when we tell them they have to review their customer accounts for fair lending issues, and when we tell them they have to ensure their documents are in order and compliant, they look at us like we are crazy. This is partly because they don’t believe us and partly because they believe they are compliant—and if they aren’t, they think it’s possible to fly under the radar. It is also partly because they don’t know what they don’t know.
Many of these dealers and finance companies have operated for years with loyal employees who know the laws and their business. Many of these dealers and finance companies care about their customers and want to work with them to establish long-lasting relationships.
Many of these dealers and finance companies are visibly shocked when faced with the daunting task of writing down the business’ practices, which have traditionally been informal and unsophisticated but generally compliant. They balk at the expense of federal law reviews of their advertising and origination processes. And they look at us like we’ve completely lost our collective minds when we suggest they dedicate one or more of their smartest employees solely to compliance rather than selling cars or collections.
These dealers and finance companies haven’t seen the CFPB civil investigative demands aimed at larger industry members. These dealers don’t routinely read the CFPB blog and don’t follow the CFPB’s activities.
It’s our job to read and stay on top of the CFPB. We believe the CFPB will do its intended job, and we’re not crazy.
There has been no recent law that has impacted the consumer financial services industry as substantially as Title X of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Title X of Dodd-Frank created the CFPB—a “super regulator” charged with providing protection to consumers of financial services. Intended to protect consumers, the CFPB was tasked with supervision of select industry members like consumer reporting agencies and “larger participants” in other industries like BHPH dealers. The bureau was also charged with the enforcement of consumer financial protection laws against many others.
The CFPB just had its first birthday in July, and while it remains a fledgling organization, during its first year, the CFPB has taken its role of consumer protector seriously. It has hired hundreds of lawyers, economists and lay people to research the industries it regulates and to enforce current and future laws governing those industries.
The CFPB has established a complaint database where consumers can publically vent alleged wrongdoings by industry providers. It has proposed and adopted numerous rules governing supervision of industries and is obligated to address by regulation other perceived wrongs against consumers?many in the mortgage space.
Not only will it supervise industry players, but it will enforce the consumer financial protection laws such as the Truth in Lending Act, the Equal Credit Opportunity Act and the Fair Credit Reporting Act. In the past month, the CFPB announced its first public enforcement action against Capital One and filed its first lawsuit against lawyers in California.
In the enforcement action, resulting in a consent order, the bureau ordered Capital One Bank (USA) N.A. to refund approximately $140 million to 2 million customers and pay an additional $25-million penalty to the CFPB’s Civil Penalty Fund. The action resulted from a supervisory exam that identified deceptive marketing tactics used by Capital One’s call-center vendors to pressure or mislead consumers with low credit scores or low credit limits into paying for “add-on products,” such as payment protection and credit monitoring, when they called to activate their credit cards.
The CFPB’s press release states that Capital One customers were misled about the products’ benefits, deceived about the nature of the products, misled about eligibility, misinformed about the products’ cost and enrolled without their consent.
On July 18, the CFPB filed suit against Chance E. Gordon and The Gordon Law Firm P.C., alleging the firm collected advance fees from consumers for mortgage relief services that were never delivered, a violation of the Consumer Financial Protection Act of 2010 and other federal laws implicated when mortgage relief services are offered. The CFPB filed the original action under seal, requesting a freeze on the firm’s assets before unsealing the complaint. True to its purpose, this lawsuit demonstrates the CFPB’s intent to protect consumers from unfair, deceptive and abusive acts and practices and shows it has the legal means and chops to do so.
What this means to the auto finance industry is that the CFPB intends to protect consumers. It will do so by using all of the tools at its disposal, including supervision, regulation and enforcement.
So, your compliance lawyer is not crazy; we just want you to be compliant and prepared if the CFPB—or a state regulator, for that matter—comes knocking at your door.