Looking Ahead: Considerations for Your 2021 Compliance Action Plan

As you build and adapt your compliance action plan for the year, be aware of the latest regulatory, industry and best practices developments that could affect your dealership.

We recommend that dealers monitor actions initiated by the CFPB and FTC especially UDAAPs, UDAPs or cases where auto dealers are involved.

#StayCompliant

Monitor Legal actions that involve auto dealers

Recommended Practices

Did you know?

The FTC and state regulators investigate auto dealerships for deceptive and unfair sales and financing practices including spot delivery, false recall notices and payment packing.

What's new for 2021

The ruling of Seila Law LLC v. CFPB that the CFPB structure is unconstitutional could affect the bureau’s enforcement priorities related to the consumer auto lending industry.

Recommended Practice

Establishing a culture of compliance, data security, transparency, and honesty with customers is critical to protecting your dealership.

If the previous decade is any indication, the presidential administration and its philosophy on regulation will likely continue to have a strong impact on the enforcement activates undertaken by and the rules drafted by the agencies such as the CFPB and FTC. We can expect President Joe Biden to put in place a more aggressive CFPB director and several of the recent changes under President Trump’s administration will likely be voided. Where the auto industry is concerned, we anticipate that the FTC and state regulators will continue to investigate auto dealerships with a wide range of deceptive and unfair sales and financing practices, including spot delivery, false recall notices and payment packing. In the last few years we have also seen regulators charging not only the dealership, but even their owners when the behavior is perceived to be particularly egregious. We anticipate the FTC will maintain its interest in auto dealer activities, initiating new investigations and entering into consent orders with dealers currently under investigation.

On the regulatory front, we continue to think it unlikely that either the CFPB or the FTC will issue new rules applicable to, or affecting, auto dealers. However, dealers should keep abreast of any new consent orders involving other dealers to determine whether any particular conduct is disfavored by either agency. We also recommend that dealers monitor actions initiated by the CFPB and FTC, especially where UDAAPs, UDAPs or auto dealers are involved.

Seila Law LLC v. CFPB

Last year, we highlighted that one key issue to watch in 2020 would be whether the single director structure of the CFPB will remain in place or if it is unconstitutional. In June 2020, in the matter of Seila Law LLC v. CFPB, No. 1907, the Supreme Court of the United States ruled that the structure of the CFPB is unconstitutional because it limits the ability of the President to fire the director, unless with cause.

Context: The case stemmed from the CFPB’s issuance of a civil investigative demand (CID) as part of an investigation of the Seila Law to determine whether it violated the TSR. The law firm refused to comply with the CID on grounds that the CFPB’s structure violated the separation of powers by way of the single director structure. Currently, the single director serves a five-year term upon being appointed by the president and confirmed by the Senate. The director may only be removed for “inefficiency, neglect of duty, or malfeasance in office.”

Seila Law argued, among other things, that the CFPB wields unprecedented power because it operates outside of the congressional appropriations process and has the authority to enforce 19 consumer protection statutes. The law firm asks that it not be required to comply with the CID because CFPB’s structure is unconstitutional.

In a stunning turn of events, the CFPB agreed that its single director structure is unconstitutional. The CFPB asked the Supreme Court to remove the single-director structure yet keep the CID enforceable. This suggests that while the CFPB wants to see a change to its leadership structure, it is not seeking to invalidate the entity as a whole. Because the of the CFPB’s position, the Supreme Court invited an attorney to argue on behalf of the CFPB.

Although many dealers may not be directly under the jurisdiction of the CFPB, the ruling is likely to have huge ramifications across the consumer financial services industry, including the consumer auto lending industry. While the lower courts will continue to determine open questions on the issue, it is an important topic as President Joe Biden likely looks to put in place a more aggressive CFPB director. For example, many industry insiders anticipate that with this ruling, CFPB could transition from a single director structure to a multi-director structure similar to the FTC. Such a change in leadership structure will likely impact the bureau’s enforcement priorities.

CFPB Focus on Policies and Procedures

As stated in Topic 12, auto dealers should implement and maintain current written policies and procedures, as well as effective systems and controls, to ensure its consumer financial product programs comply with federal consumer financial laws. To that end, a compliance management system should be updated on an as needed basis to address any changes in applicable law. For guidance, the CFPB has released a comprehensive Supervision and Examination Manual, and several additional guidance documents and bulletins that shed light on all of the different ways their examiners oversee the institutions subject to their supervisory and examination authority. While the CFPB does not have direct examination and supervisory authority over franchised auto dealers and other select independent dealers, the financial institutions it does supervise and examine are likely to continue their pattern of assessing dealer compliance as a precondition to doing business. Implementing your own compliance management policies, processes, and procedures across the business is the best way to position your dealership for the evolving lender efforts in this regard.

Data Safeguards and Security

The California Consumer Privacy Act (the “CCPA”) comes into effect on January 1, 2020, and contains numerous new privacy and data security obligations applicable to companies doing business in California. For example, the CCPA will require covered businesses to provide California residents with greater transparency and choice regarding how the business collects and uses consumer personal information. Covered businesses will have an affirmative obligation to respond to specific consumer¹ rights requests, observe restrictions on certain data practices, and update their privacy notices annually to provide detailed disclosures about their data handling practices relevant to California consumers’ personal information. Of particular note, the CCPA has a 12-month “lookback” provision such that certain of these obligations will apply to personal information collected in 2019. See Topic 5 for additional information.

Financial Technology Companies

Financial Technology Companies or Fintechs have been disrupting the consumer financial services industry for the past few years. Fintechs present consumers with alternatives to traditional financial institutions. Rather than visiting a brick and mortar to obtain a loan, many consumers are finding lending through online sources that do not have physical location. We anticipate that the auto industry will continue to innovate the way in which it serves its customers. Fintechs may present new opportunities to dealers to connect with consumers, lenders and other service providers. We recommend that dealers continue to monitor this development as it may benefit from the changing technological landscape.

Create a Culture of Compliance

Establishing a culture of compliance, data security, transparency, and honesty with customers is critical to protecting your dealership. So is establishing processes to be able to document your compliance, deal by deal. An electronic system that identifies which processes were completed for each deal can be invaluable if an audit or regulatory inquiry occurs. In addition, do not forget the importance of a systematic customer complaint system. Seek to resolve complaints using a consistent process with timelines and escalation procedures. Remember that in the long run, it may be better to resolve a dispute in favor of the customer rather than winding up on the CFPB’s online complaint database, or similarly on the radar of your state Attorney General or Better Business Bureau.

Watch List for 2021!

The ruling of Seila Law LLC v. CFPB that the CFPB structure is unconstitutional could affect the bureau's enforcement priorities related to the consumer auto lending industry.

Recommended Practice

Update your compliance management system whenever the laws that apply to your business change.

What's New for 2021!

The ruling of Seila Law LLC v. CFPB that the CFPB structure is unconstitutional could affect the bureau's enforcement priorities related to the consumer auto lending industry.