Is the Consumer Financial Protection Bureau targeting the automotive BHPH community?
Of course not, who could even think such a thing? While the CFPB has expanded its look into the automotive lending process and industry by issuing subpoenas to various auto lenders in our industry, it does not mean that they are focusing just on subprime lending practices or going after the smaller more independent automotive community.
The bureau is just checking out if terms, pricing of auto loans are being properly disclosed and if subprime consumers are subjected to high interest rates compare to rest of the retail buying community. It appears this focus is so far just on the BHPH community and not on the franchise dealers, which might be better prepared for such a probe.
All of this is the result of the recent 2010 Dodd-Frank financial law that we already discussed in the past. It does appear the U.S. Justice Department will also be joining this by investigating retailers that provide in house financing to consumers with poor credit ratings and subject them to higher than normal interest rates and conditions.
Now to say the CFPB is targeting the BHPH community it not fair. Just so you know, under the terms of Dodd-Frank, the bureau has no jurisdiction over franchised auto dealers, but they do have authority over the Buy-Here, Pay-Here Retailers that conduct in house financing. The bureau has gone so far as to warn BHPH retailers in March of this year against charging high interest rates and requiring additional services / products when presenting a loan which might be consider a form of practice discrimination. The bureau has already presented research showing that BHPH retailers attach higher markups on loans presented to certain minorities which might lead to other bad faith practices.
Well I guess if you do in house financing, you better make sure all of your records are up to date and that you have kept at least 7 years of your past sales and loan documents. This is going to be interesting.