Consumer Finance Protection Agency Complicates BHPH Compliance

Ever get the feeling that compliance is like trying to hit a moving target? Well you are not alone and in light of recent events, the target might have just become even harder to hit.

The hottest topic with all BHPH dealers right now has to be the new Consumer Finance Protection Agency (CFPA) Bill that recently passed. It has replaced inventory acquisition, to give you an idea of how hot the topic is. Not a day goes by that I’m not answering multiple e-mails and phone calls from dealers asking, “What does it mean for BHPH dealers?”

Let me start by saying that I am not an attorney, nor do I play one on TV, but I have recently stayed at a Holiday Inn Express. Having said that, I don’t think my understanding of the bill is any more insightful than anyone else’s. I have read parts of the bill, which is 2,000 pages and a great insomnia cure, and can’t make heads or tails of what the full impact will be for BHPH. At this time, I don’t think anyone honestly can.

A few things we do know for sure. We as BHPH dealers are smack dab in the middle of it. Automobile dealers were exempted, but I’m sorry to say those engaging in BHPH weren’t so lucky. I believe this will be true whether the dealer has a related finance company or not. I get this belief from industry attorneys and industry insiders whose pay grades are at least two levels above mine. At one time, we in the BHPH industry welcomed the affiliation with the alternative finance industry. I’m afraid that affiliation has cost us our exemption since it is one of the main targets of the CFPA.

There are a couple of areas of our industry that could be affected and are of the most concern for me, at least initially. One is arbitration agreements. They may be a casualty of the regulation set by this new agency. The other area of concern is pricing. It’s not clear whether this will be credit pricing via interest rates or retail pricing of the vehicles. It could very realistically be both. It’s a lose/lose from a profitability standpoint either way.

Another thing we know is that the government plans to commit some pretty substantial financial resources to enforcement of all this. Figures in the $500- to $700-million range are not out of the realm of possibility. For that price tag, I think enforcement will be a fairly high priority. There is even talk of some 3,500 attorneys being added to the new agency to aid not only in defining the new regulations, but enforcing them. Insert your own lawyer joke here.

As for enforcement, it will be quite some time before we know what target we should be aiming at for sure. Some think we could see something in as few as six months, but with everything currently on our government’s plate, 18 months is probably a more realistic timetable. That’s good news to a certain extent. The bad news is that we have a fairly long wait to find out the rules of the game.

Will CFPA end BHPH as we know it? I don’t believe so. I think it has the potential to significantly change part of the landscape. I think the dealers who are trying to do things the right way will be just fine. Those dealers pushing the envelope and playing in the gray areas will be weeded out, which will not necessarily be a bad thing. As we have seen from some other industries, a purging is sometimes needed and quite often overdue.

Now, CFPA is just one compliance landmine we face in our industry. Others include the Uniform Commercial Code (UCC), Fair Credit Reporting Act (FCRA) and Red Flags, just to name a few, and don’t get me started on HIPAA, Privacy or the Patriot Act. You certainly don’t have to look far to find some sort of regulation in our industry, and now more than ever compliance needs to be a priority.

The key to compliance in today’s environment is effort. At one of our recent BHPH 20 Group meetings, we had a guest speaker who used to be an OSHA inspector who was now working for an insurance provider. The speaker was very candid in stating that in their opinion no business can be 100 percent compliant in all aspects. There are simply too many rules and regulations that can and do change, as well as other variables such as personnel turnover, to be able to stay in complete compliance at all times. It’s the effort and attempt to play by the rules that will be the difference between being fined or just given a warning.

Effort is defined by having a written policies and procedures manual. It doesn’t necessarily have to be a formal, professionally-done manual. It can be a simple handbook provided to all employees outlining the basic policies and procedures for each aspect of your business—collections and underwriting practices, sales process, and general company policies.

Effort also includes continual updating and training of the manual or handbook. Simply creating and having one is not good enough. All businesses change over time, therefore policies and procedures will change.

Additionally, effort can mean seeking out professional help. Document reviews on a regular basis are a must (not necessarily every year, but at minimum every other year), and not every document you use in the normal course of business would need to be reviewed. An example would be a retail installment contract purchased from Banker’s Systems. They have ensured its compliance and will notify you of any changes necessary. Regular review would be needed for any self-generated internal documents used. An example of this would be a warranty form. A letter from an accredited attorney stating that your documents are in compliance can literally be a get-out-of-jail-free card.

If you are looking for a regulation-friendly industry, BHPH is certainly not it. But even with the moving targets of industry regulation, it is still a very lucrative industry for those who try to do it the right way. I’m hoping the new CFPA regulations, when they are finally hammered out, will be fair, and I believe they will have everyone’s best interests in mind.

I think it’s too early for the Chicken Little mentality. No doubt the cost of compliance will surely go up. As always, the burden is on us to not only know the rules, but play by them to the best of our abilities. In today’s electronic age, the availability of information is almost endless, so ignorance is definitely no excuse. Here’s hoping that on your next compliance review you receive an “E” for “effort” and not an “O” for “out of business.”