Franchised motor vehicle dealers are right to be proud of the work done to exempt themselves from the jurisdiction of the new Bureau of Consumer Financial Protection (BCFP) that will be created by the federal financial reform legislation. The exemption will be important in permitting dealers to work on behalf of consumers to help them find appropriate financing necessary for sales of vehicles. Winning the exemption required hard work by dealers, NADA, VADA, and many others. However, as with other matters involving Congress, there are other shoes about to drop.
BCFP jurisdiction anyway?
Not all motor vehicle dealers will be exempt from BCFP regulation. Under the statute, exclusion for a dealer extends only “over a motor vehicle dealer that is predominantly engaged in the sale and servicing of motor vehicles, the leasing and servicing of motor vehicles, or both.” Congress was thus specific that a dealer must have a service operation to be exempt from BCFP jurisdiction. All franchised new motor vehicle dealers have service operations. Many used vehicle dealerships do not. If you are a multi-dealer company that has a separately incorporated used vehicle dealership that does not have a service department, you may find that the BCFP considers that dealership subject to its jurisdiction.
Buy Here Pay Here Dealer
A Dealer with a BHPH business will come under the jurisdiction of the BCFP as one whose “extension of retail credit or retail leases is not routinely assigned to an unaffiliated third party finance or leasing source.” So if you have an affiliated BHPH dealer, or your dealership does BHPH transactions at a level that BCFP regulators will define as routine, the dealership will not be exempt from BCFP regulation.
Federal Trade Commission
While the statutory exemption relieves certain dealers of BCFP oversight, the financial reform legislation expands the Federal Trade Commission’s authority to implement rules with respect to them. For years, the Federal Trade Commission has groused about the limitations on its rulemaking authority. With the passage of this new legislation, the Federal Trade Commission has the authority to develop rules about what it considers to be unfair or deceptive practices by motor vehicle dealers under the processes of the federal Administrative Procedures Act that are less cumbersome than the rulemaking procedures the FTC previously had to follow.
The Federal Trade Commission has for a number of years eyed F&I practices at dealerships. The FTC may use this new rulemaking power to consider regulation of dealer F&I practices.
Office of Service Member Affairs
Because of the highly-publicized concerns raised during the debates on the BCFP dealer exemption about the activities of some dealers in vehicle sales to service members and their families, there is a section of the law that requires the Federal Reserve System and the FTC to coordinate with the Office of Service Member Affairs to ensure that “service members and their families are educated and empowered to make better informed decisions regarding consumer financial products and services offered by motor vehicle dealers, with a focus on motor vehicle dealers in the proximity of military installations.” Based on this language, motor vehicle dealers that do business with service members may see rules applicable to them regulating how they may deal with service members.
Finance Sources and Lessors
The biggest shoe to drop for exempt dealers will come from the finance sources and lessors who are subject to BCFP jurisdiction and who accept assignment of retail paper and leases from dealerships. These companies will be subjected to the restrictions of the financial reform legislation, and they are likely to push down onto dealers as many of the compliance burdens and obligations as they can.
In that regard, it is more critical than ever that dealers understand the agreements they sign for indirect lending and leasing arrangements with finance sources and lessors. In the past, dealers have often simply signed the agreements tendered to them by these companies. Dealers must carefully consider the master agreements they sign when forming indirect arrangements with finance sources and lessors.