8 Tips to Help BHPH Dealers Stay Off CFPB Radar
Rick Hackett shared eight specific steps buy-here, pay-here dealers can take to stay off of the radar of government regulators.
Hackett acknowledged no surefire way exists for operators to protect themselves completely from a regulator who can decide what a reasonable price is. But the former Consumer Financial Protection Bureau assistant director and current partner at Hudson Cook recommended these steps to minimize exposure.
1. If a car buyer is paying cash, never sell (or even offer to sell) a vehicle for a lower price than what you charge when the customer finances. If the financed price is higher, regulators may conclude you added an undisclosed finance charge. You may also be in violation of usury laws.
2. Get your house in order when it comes to technical disclosures. This includes the Truth in Lending Act, adverse action notices, as well as compliance with privacy laws and Article 9 of the Uniform Commercial Code.
3. Train your F&I managers, just like you train your mechanics. The world of F&I has become incredibly complicated, so Hackett said mere hope is not a viable strategy. Operators must invest in education and training — and be able to demonstrate to regulators that you've done so.
4. Underwrite for the borrower's ability to pay, rather than focusing solely on the collateral value. Hackett pointed out operators may prevent accusations of predatory lending while still protecting financial interests.
5. Treat your complaints as a resource, and remember they can come back to bite you. Do you receive multiple complaints about the same salesperson? Have your collectors been accused more than once of the same illegal practice? Hackett suggested that operators take note of the trend — and fix it — before the regulators do it for them.
6. Work with troubled borrowers, and try your best to keep them in their vehicle. Premature repossession only reinforces the appearance of predatory lending, according to Hackett.
7. Proactively manage repo agents and all other vendors. Hackett listed several questions for operators to answer. Do you know whether your repo agent has been sued, has any judgments against him, or is the subject of BBB complaints? Has he been trained by a recognized recovery compliance organization? Is your cleaning service bonded and insured? Do they conduct thorough background checks? If you outsource collections, does the agency adhere to all applicable laws, have all necessary licenses, and receive adequate training? Are your vendors' procedures similar to your own?
Hackett conceded that this litany of questions may seem overwhelming, but regulators hold dealerships responsible for whom with they do business.
8. Approach ancillary products carefully. Hackett suggested that operators don't sell the customer options they can’t afford. And make it clear that these items are truly optional. If every buyer leaves your lot with the same aftermarket products, regulators may conclude that you require them for financing.
“As the CFPB and its allies in state attorney general offices turn increasing focus to 'high-priced' credit for nonprime consumers, it's important for dealers of all types — and especially for independent dealers with buy-here, pay-here operations — to proactively plan for outreach from regulators," said Hackett, who will share more compliance-related insight in a Q&A-style keynote address at the Innovate 2014 industry conference, hosted by AutoStar Solutions.
"It's hard enough as it is to run a nonprime credit dealership, with wholesale inventory prices inflated and consumer incomes stagnant," Hackett continued.. "Now federal regulators and state attorneys general have decided they have the power to declare when a seller's price is 'inflated to hide the true cost of credit provided.' The result is an automatic truth-in-lending violation and a claim of unfair and deceptive practices."
Hackett will deliver one of six featured keynotes on the BHPH industry at the seventh annual Innovate Conference, which runs from Sept. 21 through 24 at the Gaylord Texan Resort & Convention Center in Grapevine, Texas.
Innovate will be hosted by AutoStar Solutions, a provider of enterprise-level software to subprime auto lenders, as well as independent retail and BHPH dealers.
Attendees can choose from a wide variety of classes in 10 different tracks, including compliance and technology. AutoStar expects more than 500 attendees at this year's conference, in addition to major exhibitors and financial institutions that will showcase the latest dealership technology, best practices and industry solutions.
To register, visit http://innovate.autostarsolutions.com, where users can build and save their own customized event schedule. Those who would rather go mobile can tailor their schedules with the Guidebook app, available at http://guidebook.com/g/innovate2014.
AutoStar is offering a $50 off early bird special to all attendees registered before Aug. 31.