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 today
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."

SubPrime Auto Finance News also reached out to 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 today 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.

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Nick Zulovich can be reached at nzulovich@subprimenews.com. Continue the conversation with SubPrime Auto Finance News on LinkedIn and Twitter.