THIS CAN'T BE GOOD

This isn't our usual Tip of the Week.  It's more like a sounding of the alarm, or a venting, and a slightly long one at that, but bear with us.

We read with interest that three consumer protection organizations, the Consumer Federation of America, the National Consumer Law Center, and Americans for Financial Reform Education Fund) recently sent a letter to the CFPB calling for it to collect more data about auto finance and its impact on consumers.  The three no doubt well intentioned band of do-gooders lauded the CFPB for its Auto Finance Data Pilot, which was launched last year and which has resulted in the collection of data from larger participants (banks, finance companies and captive lenders) about the origination and auto lending variables such as dealer markups, add-ons, and collection and servicing information; however, the group indicated that the CFPB hasn't quite gone far enough.

They noted that the pilot program collected data from lenders that originate greater than 20,000 auto loans in the previous calendar year, and a reduced set of data from lenders that originate greater than 500 and fewer than 20,000 loans in the previous year, but encourage the Bureau to "expand its data collection beyond those dealers that make 500 loans or more per year, as many BHPH dealers will fall below this threshold........we note here that BHPH dealers (and other auto dealers) have a reputation for including pre-dispute arbitration clauses in their contracts, but failing to honor the terms of those agreements when faced with an arbitration demand from a consumer.  Some BHPH dealers refuse to pay the fee to initiate the arbitration, despite a clear requirement in the contract or from the selected arbitration company.  This has cascading problematic consequences for consumers and their access to justice through counsel, as it intentionally slows down the litigation process and impedes access to their vehicle altogether". 

First off, we take issue with  the group's call for the Bureau to take action based merely on reputation.  Really?  No statistics of their own, not even the inflammatory anecdotal tales of horror we typically see from consumer advocates? Just an unsubstantiated accusation that some dealers don't honor the terms of arbitration. You guys can surely come up with something more concrete?

I have been practicing in this area for over 30 years and can't come up with an instance of this alleged behavior, but for the sake of argument I'll grant them that it has happened.  I don't think it's a widespread issue, though, and certainly not one large enough to merit gathering data from the tens of thousands of BHPH dealers that don't reach the annual mark of 500 deals.  Merely subjecting dealers to this would add time, expense, and most significantly, put them in the crosshairs of CFPB scrutiny of their data. You'd better believe Big Brother would be watching.

Let's go a bit further and dissect the group's logic.  They reach the conclusion that a BHPH dealer refusing to pay the arbitration fee would somehow limit a consumer's access to justice through counsel and slow down the litigation process.  Interesting thought that I'm sure causes them sleepless nights, but if the fee wasn't paid, then the consumer would just move the case back to court, and isn't the preferred outcome of plaintiff lawyers and consumer advocates, who have tried to do away with mandatory arbitration for decades? Something doesn't feel right about this whole train of thought.

Here's what we think is really going on:  these groups have a fervent belief that BHPH is bad for consumers and they want more CFPB scrutiny of this industry with the soiled "reputation".  They are using the arbitration argument because they know the CFPB shares their sentiment and it may compel them to act; however what they really want is the CFPB to gather all sorts of data points on BHPH dealers, just like they did on the large participants.  Things like negative equity, repossessions, add-on products, and just about every other aspect of their business would then be ripe for analysis.  

Our tip for this week, then, is to pay attention to this issue, because this may not be the end of the story, and if these consumer groups have their way, this audience will be subject to even more scrutiny.

Please reach out to Ignite at Info@Ignitecp.com if you'd like to discuss this article, your sales process, or any other aspect of your business.