CRYSTAL LAKE, Ill. -

Lobbying efforts by organizations such as the National Automobile Dealers Association prevented dealerships from being directly regulated by the Consumer Financial Protection Bureau when it was formed four years ago.

But Automotive Compliance Consultants general counsel David Missimer explained how the CFPB’s latest moves could greatly influence how stores operate — especially in the F&I office.

As SubPrime Auto Finance News covered last week, Missimer recapped that the CFPB proposed a new rule to oversee larger nonbank auto finance companies for the first time at the federal level. 

If enacted, Missimer says this rule will significantly affect auto dealer practices, including compensation. He emphasized that earlier CFPB documents related to this proposed rule make clear to auto finance sources that any continuation of markup as a compensation model for dealer generated financing will require a significant compliance management system.

“The CFPB is moving full-steam ahead to directly affect, change and establish compensation policies in dealerships,” Missimer said.

“The only way to protect the lending model currently in place is for dealerships to institute strict controls through a robust compliance management system,” Missimer continued. “And work with their finance sources to establish controls and procedures to respond to CFPB inquiries and accusations of disparate impact.”

As proposed, Missimer pointed out the rule would allow the bureau to supervise nonbank auto finance companies that make, acquire or refinance 10,000 or more loans or leases annually. If approved, the rule will place 90 percent of all nonbank auto finance under CFPB supervision. The proposed rule is open for comment for 60 days.

In addition to what’s being dubbed the “Larger Participant Rule,” CFPB director Richard Cordray reiterated the bureau’s focus on dealer markup, “and the agency’s general disdain for the practice,” according to Missimer.

The CFPB also issued supervisory highlights focused exclusively on auto finance.

Missimer contends the supervisory document makes clear to auto finance sources that any continuation of markup as a compensation model for dealer generated financing will require a significant compliance management system.

“The CFPB suggested a move to flat-rate compensation, or limiting dealer markup to 1 percent, may significantly reduce a company’s fair lending compliance obligations,” he said.

Furthermore, Missimer declared that the CFPB’s actions make clear that compliance would include providing dealer education and training, as well as assisting the dealer in developing a strong fair lending compliance management system.

Missimer closed his assessment of the latest CFPB actions by touching on the abstract legal theory that’s also stirred debate in the auto finance industry.

“The CFPB’s use of disparate impact is questionable from a legal context. Until the Supreme Court weighs in on use of the theory in lending, fair lending practices and procedures must be adopted to prove legitimate business purpose and necessity in response to disparate impact claims,” he said.

For information Automotive Compliance Consultants and its materials on dealership compliance, audits and training and more, contact Missimer at dmissimer@compliantnow.com or visit www.compliantnow.com.