Today's Trends in Credit Regulation

CFPB Update
By Michael A. Benoit

The Bureau was quite active during March, with most of the action focused on payday lending and debt collection. Here are a few of the items we found.

House Republicans to the CFPB: Give it Up!

House Republicans are turning up the heat on the Bureau on fair lending. House Financial Services Committee Chairman Jeb Hensarling (R-TX) gave Richard Cordray an ultimatum to turn over detailed information regarding the Bureau's investigation of the indirect vehicle financing model or face a Congressional subpoena. Last spring, the CFPB warned finance companies that they could be liable for violating fair lending if they accept contracts from dealers that use dealer reserve, which the CFPB contends may intentionally or unintentionally discriminate against minority buyers. Well-publicized enforcement actions against auto finance companies followed. The CFPB, despite several Congressional requests, has failed to detail how it determines if an auto finance company is discriminating. The letter noted that if the information was not turned over by March 13, the committee would issue a subpoena to obtain it. Doing so would be the first time the committee has sought information in such a way from the CFPB.

Bureau's Payday Lending Initiatives Worry Subprime Auto Finance Companies and BHPH Dealers.

On March 25, the CFPB issued a report on payday lending that found that four out of five payday loans are rolled over or renewed within 14 days. The study also showed that the majority of all payday loans are made to borrowers who renew their loans so many times that they end up paying more in fees than the amount of money they originally borrowed. At a Payday Field Hearing in Nashville, Director Cordray said that the Bureau selected Nashville for the hearing because of the prevalence of payday lenders in Tennessee and in many of the neighboring states. Buy-here, pay-here dealers and subprime finance companies are keeping a wary eye on the Bureau's activities in the payday loan field, concerned that the Bureau considers payday lenders predatory and that the Bureau might suspect some BHPH dealers and subprime finance companies of predatory practices. Any time the word "predatory" is used by the Bureau, BHPH and subprime auto financing companies get nervous.

Is Debt Collection Regulation on the Way?

On March 20, the CFPB issued a report claiming it received more than 30,000 consumer complaints about the debt collection market. The report finds that many consumers complain that they are being hounded by debt collectors about debts they do not owe. Note that the CFPB made no effort to determine the accuracy or integrity of the complaints; in fact, only 1500 of the 30,000 consumers who complained disputed the response they got from the company in question. Top complaints also include debt collectors' use of aggressive communication tactics and threats of illegal actions. The Bureau is threatening to extend FDCPA-type debt collection rules to entities that have, until now, been exempt from those rules, such as those who are collecting obligations they originated or who acquire obligations when such obligations are not in default.

Another Larger Participant Proposed Rule on the Way?

On January 23, the CFPB proposed a rule to allow it to supervise certain nonbank international money transfer providers. The proposed rule brings new oversight to larger nonbank international money transfer providers. The auto finance industry has been expecting a similar proposed "larger participant" rule that will identify those companies that will be subject to direct Bureau supervision. Our best guess is that we'll see that one in the second or third quarter of this year.

FTC "Warning Shot" Turns into "Fire for Effect."

The Federal Trade Commission has charged an Arkansas car dealer, Abernathy Motor Company, and its two principals with failing to display Buyers Guides on used vehicles offered for sale, as required by the FTC's Used Car Rule. Each violation could result in a civil penalty of up to $16,000. In January 2013, the FTC announced that its Southwest Region Office had warned 11 used car dealerships in Jonesboro, Arkansas, that their sales practices violated the Used Car Rule. All but Abernathy Motor Company came into compliance. According to the complaint, the FTC visited one of Abernathy's dealerships in November 2012 and found that none of the vehicles offered for sale displayed a Buyers Guide. The agency informed the dealership of that fact and forwarded a copy of the Buyers Guide along with A Dealer's Guide to the Used Car Rule, an FTC publication. In May 2013, the FTC revisited that dealership and another Abernathy dealership and found that both dealerships were offering used vehicles for sale that did not display Buyers Guides.

Michael A. Benoit is a partner in the Washington, D.C., office of Hudson Cook, LLP. Mike can be reached at 202-327-9705 or by email at

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