“Bottom-Feeders” to Be the First Scrutinized

When you are a lawyer, it seems that all your friends insist on telling you every lawyer joke they hear. One of my favorite recent ones: “What’s the difference between a lawyer and a carp?” The answer, after my obligatory “I give up” was, “One’s a scum-sucking bottom-feeder, and the other one’s just a fish.”

I immediately thought of that one when I read that Federal Trade Commission Chairman Jon Leibowitz, in a speech to the U.S. Chamber of Commerce, used the term “bottom-feeder” in describing the FTC’s agenda for the coming year in light of the creation of the Consumer Financial Protection Bureau (CFPB), with which the FTC will share enforcement authority over financial services companies.

Leibowitz, in an effort to calm criticism by the business community of any increase in regulation, said that the agencies would not impede the business community and that in the exercise of their overlapping jurisdiction, they did not want to “double-team” legitimate business. He said that the CFPB will not be “devising new hoops for already stressed businesses to jump through,” because they “will be too busy going after the multitude of truly bad actors, the bottom-feeders, on the consumer financial protection stage.”

He’s selling, but I’m not sure I’m buying. I recently attended an American Bar Association meeting that featured a panel discussion about the FTC’s and the CFPB’s likely agendas over the course of the new year. The panelists included two FTC lawyers, an industry lawyer and a consumer advocate.

While I wasn’t particularly alarmed by the FTC lawyers or the industry lawyer (who was my partner, Michael Benoit, by the way), the consumer advocate lawyer made it clear that her view of business practices the CFPB should focus on includes some very mainstream dealership and finance company practices such as dealer participation in the finance charge, spot deliveries and the use of arbitration agreements. You can bet she’ll be bending ears at the Bureau as it begins to write new rules.

Perhaps the industry will be pleasantly surprised, however, and the CFPB and the FTC will actually focus on “bottom-feeders.”

Maybe the FTC and the CFPB will leave dealers alone for awhile and focus on parts of the credit industry that have seen a lot of recent criticism, like payday lending, tax-anticipation loans and title lenders. But I’m thinking that won’t be the case and “bottom-feeding” dealers will get at least some attention.

If that’s the case, what sort of dealers and dealer practices will we see under attack? I have a few candidates.

• High on my list would be the high-pressure shops that hide the ball from the customer, packing payments and quoting payment amounts that include a “leg.”

• And how about those F&I departments that dummy up credit applications and supporting documents in order to make credit applicants look more creditworthy than they actually are in order to “get the deal bought?”

• Have you heard of “power booking?” Some F&I shops add phantom equipment to the car that will serve as collateral for the finance company to which they intend to assign a buyer’s retail installment sales contract, hoping by doing so to increase the assignee’s advance amount.

• Some dealers have never had their advertisements reviewed by a lawyer and pay no attention to the federal and state legal requirements that govern their ad practices. The fruit here hangs so low it touches the ground.

• And finally, some dealers essentially ignore compliance requirements and fly under the radar when it comes to complying with things like the rules relating to privacy notices and Safeguarding Policies, OFAC checks, the Red Flags Rule, and the new Risk-Based Pricing Rule. I expect that we will see some early efforts by the FTC and the CFPB to determine who’s naughty and who’s nice.

Those are some of my early candidates for “bottom-feeder” attention. If any of these descriptions fit your shop, it might be time to work your way out of the muck and head toward the surface.

Vol. 8, Issue 3