CARY, N.C. -

Compliance experts from Reynolds and Reynolds and Dealertrack Technologies explained how the first enforcement action against the vehicle financing industry by the Consumer Financial Protection Bureau might give more detail about the agency's regulatory agenda.

To begin his assessment of what the CFPB ordered U.S. Bank and Dealers' Financial Services to do, Terry O'Loughlin, the director of compliance at Reynolds, described a term in the legal community called, "checkbook justice."

O'Loughlin explained that when an individual or company is caught doing a practice that might violate laws, a state or federal agency might require the party to pay a percentage of what could be the potential liability.

"That's not the case with the bureau," O'Loughlin said last Friday from the National Independent Automobile Dealers Association Convention in Las Vegas. "The bureau tends to make the party that's violating the law pay handsomely for their alleged wrongdoing. That's what it sounds like in case. It sounds like an expensive resolution.

"The CFPB is really going to force companies to pay for their actions. They're not going to settle for a smaller amount. I think this is one of those cases where they're demonstrating their strength they can call upon," he continued.

Before he came to Reynolds and Reynolds several years ago, O'Loughlin was part of the legal team for the Florida attorney general's office. Earlier this month, he was part of the audience at the keynote session at the NAF Association's 17th annual Non-Prime Auto Financing Conference when Rick Hackett, an assistant director at the CFPB who is actually departing the agency, answered a series of questions submitted in advance about how the bureau intends to regulate vehicle financing.

"I think the bureau has a consistent message from what I've seen so far. This development is indicative of that," O'Loughlin said when asked to compare this week's CFPB announcement with what he heard at the event in Fort Worth, Texas.

"They are going to proceed very meticulously and identify those problems they think need to be rectified," he continued. "If they find companies are not observing the law, then they will take deliberative action that will cause companies to pay a serious price for what they're alleging as deceptive or unfair practices."

Auto Remarketing sister publication SubPrime Auto Finance News also reached out Dealertrack counsel and compliance expert Randy Henrick, who explained that the CFPB's actions stemmed from what he called "a series of bad acts of Truth in Lending violations."

While U.S. Bank and Dealers' Financial Services are being ordered to reimburse service members approximately $6.5 million in connection with loans secured through the companies' Military Installment Loans and Educational Services (MILES) auto loans program, Henrick pointed out the potential penalties could have been more extreme. For example, potential civil penalties allowed by the Dodd-Frank Act now range from $5,000 to $1 million per day.

While lenders, dealers and service providers might be thinking the CFPB's latest actions might be associated with the indirect auto lending guidance the bureau issued this spring, Henrick said it really doesn't since this consent decree wasn't about credit discrimination, rather Truth in Lending Violations.

"What's interesting is that the Truth in Lending violations were considered to be deceptive practices by the CFPB and not merely Truth in Lending violations. That can up the ante substantially if they did want to impose penalties," Henrick said Friday from Dealertrack's offices in Lake Success, N.Y.

Other Truth in Lending issues that sparked this CFPB enforcement action according to Henrick included improper disclosure about how many monthly payments were included in the contracts as well as deceptive statements made in connection with selling aftermarket products.

"Most of those deceptive statements as best I can tell by the decree, were made by the service provider through their telemarketing and also by dealers that they had trained," Henrick said. "But what is significant is that it indicated that U.S. Bank was responsible for that conduct.

"That's where the bit of the guidance that talks about the lenders being liable for what dealers do kind of came into this a little bit," he continued. "There was this intermediary service provider who was training the dealers. At one point they indicated that U.S. Bank had the authority to approve all advertising and scripts and that they didn't use that authority properly. That was considered deceptive.

"(The CPFB) is kind of inching their way to try to make a lender liable for the wrongful act of a dealer, in this case in the aftermarket product process. Again in this case, it wasn't deceptive statements made by dealers; most were made by the service provider who set up this military loan program in 2001," Henrick went on to say.

So could the actions by the CFPB be a blueprint for other future enforcement moves coming from the bureau within the auto financing world? Perhaps not, based on Henrick's closing comment.

"It's their first real foray into auto finance enforcement, but it's in a unique situation," Henrick said.

Editor's Note: For a complete report of the enforcement actions by the CFPB against U.S. Bank and Dealers' Financial Services, go here.

Nick Zulovich can be reached at nzulovich@autoremarketing.com. Continue the conversation with Auto Remarketing on both LinkedIn and Twitter.