WASHINGTON, D.C. — Extended warranties and other products appear
to be the next regulatory target in the F&I office, according to a report
by the Wall Street Journal.

The report indicated officials familiar with a Consumer
Financial Protection Bureau investigation said the agency recently issued
subpoenas to U.S. auto lenders over the sale of extended warranties and other
financial products such as gap insurance.

Though such products are legal, the report noted that regulators
are probing whether terms and prices are adequately disclosed. The CFPB has
pursued a similar strategy with credit-card companies, fining them over the use
of deceptive marketing practices to sell products such as identity-theft
protection.

The Wall Street Journal went on to report that the
Department of Justice is also taking a great interest in the work completed at
stores' F&I offices.

The report cited comments by Jon Seward, deputy chief of the
department's housing and civil-enforcement section, at a panel discussion at
George Mason University on Thursday. Seward reportedly mentioned the Justice
Department is examining dealerships that make their own loans to customers with
poor credit and charge higher rates — buy-here, pay-here stores.

Seward declined further comment, according to the Wall
Street Journal.

This week's developments continue the recent intensifying of
regulatory examinations of the auto financing industry, a trend that started in
March when the CFPB offered guidance about indirect auto lending.

Legal experts and industry associations have questioned the
CFPB's intentions and methods, especially revolving around the theory of
disparate impact of discrimination. David Westcott, current chairman of the
National Automobile Dealers Association, reiterated his concerns in recent
commentary posted on NADA's website.

"In March, the CFPB released a bulletin that claims indirect
lending through dealerships may result in minorities paying more for auto
loans. Dealers are exempt from CFPB oversight, but auto lenders are not,"
Westcott said.

"So the bureau's guidance could drastically change how auto
finance sources compensate dealers for arranging auto loans. Keep in mind, no
one is accusing anyone of intentional discrimination," he continued.

Westcott acknowledged if there are problems in the F&I
office that result in discrimination, changes should be made.

"If the auto finance system can potentially result in
minorities paying more for credit than non-minorities in the same credit tier,
then it is considered unintentional discrimination. And the system needs to be
addressed," he said.

"But we have no idea how the CFPB concluded disparate impact
exists in today's marketplace," Westcott went on to say. "Disparate impact can
only be proven through a statistical analysis of past transactions, but the
CFPB has not revealed how it is conducting its analysis or what data it's
relying upon."

With that element in mind, Westcott made a recommendation.

"Before this consumer-friendly model is disrupted, the CFPB
should explain how it is conducting its analysis," he said.

Continue the conversation with SubPrime Auto Finance News on LinkedIn and Twitter.