Article

Wars and Rumors of Wars

May 2012, Auto Dealer Today - WebXclusive

by Thomas B. Hudson, Esq. - Also by this author


The Bible says that near the end of days, there will be “wars and rumors of wars.” I’m not Mayan (the Mayan calendar ends in 2012, if you haven’t heard), and don’t think we are nearing the end of the world, but I can tell you that the rumors are flying.

I got a call a few days back from a New England dealer who was in a real dither because he had heard that the new federal Consumer Financial Protection Bureau (CFPB) was going to impose caps on the rate of finance charges that dealers can impose in connection with selling cars on credit. “Tell me it ain’t so,” you say.

OK. It ain’t so. The Dodd-Frank Act, which created the CFPB, expressly states that the CFPB has no authority to establish maximum finance charge rates. That doesn’t mean that the CFPB can’t create problems regarding rates. It could, for example, revise Regulation Z to redefine what is and what is not a finance charge for federal disclosure purposes. For example, the CFPB might change the Reg. Z definition of the term “finance charge” to include fees and charges that are now excludable from the finance charge. That wouldn’t necessarily create a problem, since Reg. Z deals with disclosures, not caps. It would still be up to the states, as it is now, to establish maximum finance charge rates. The damage might come, however, if state legislatures adopted the new federal definition without also raising their maximum rates to accommodate the expanded definition.

It’s hard to tell where this rumor came from, but I’m betting that someone heard of a pending California bill that would cap finance charges for buy here pay here (BHPH) dealers and didn’t quite get the facts right. In any event, there’s nothing to it.

The second rumor was that the CFPB was requiring BHPH dealers to post the prices of their cars on the cars. That one’s not true either, at least not yet. The CFPB might get around to taking such action as a way of trying to force dealers into pricing their cars in a way that does not violate Reg. Z. There are dealers who will price a car at one price to a cash buyer and at a higher price for a credit transaction. That can create Reg. Z violations, and the Bureau might eventually get around to making such a rule. If it does, it will have to do it through a lengthy rulemaking proceeding, unless it determines that the practice is “unfair, deceptive or abusive,” in which case it could proceed by initiating an enforcement action. In any event, there’s no such rule yet.

My guess is that this one originated with another pending California bill that would require BHPH dealers to post the value of their vehicles on the cars themselves. There’s no telling whether the California measure will go anywhere – the proposal presents a host of problems – but after all, it is California.

And there’s the biggest rumor of all: that the Republicans will retain their House majority, win the Senate and take the presidency, and repeal all the Dodd-Frank reforms, including the one that created the CFPB. As nearly as I can tell, the source of this one is talk radio stations, and if you believe this stuff, I have some Florida swampland that you really ought to look at.

Vol. 9, Issue 3

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