Today many publications ran a story concerning the Consumer Financial Protection Bureau (CFPB). This agency has oversight responsibility for certain financial institutions, but auto dealers who sell and service vehicles are exempt from its oversight. This report from Bloomberg does a nice job of reporting the story from different angles.
Consumer Bureau Said to Warn Banks of Auto Lending Suits
Many in the industry, including gvo3, have long opined that the CFPB would attempt to eradicate dealer reserve from the indirect lending process as it stands today. In fact, I was quoted in a publication in 2004 predicting the eventual disappearance of dealer reserve using the yield spread premium calculations still in use today.
11-08-04 – Flat-rate financing deals may be the norm in two years
In today’s announcement, the reporting publications indicate that the CFPB intends to use the theory of disparate impact to potentially sue lenders for auto loans placed by auto dealers. If this works, I think we can all guess as to what the eventual ramifications are to our industry will be. For a primer on disparate impact, see my Ward’s Automotive article penned last year.
Can’t Say the Feds Didn’t Warn Us
Here’s a couple of gvo3 observations, for what it’s worth.
First, make sure you have a solid desking methodology that is consistently applied to help defend yourself against charges of disparate impact.
Second, admit it, dealer reserve is going away. Begin or continue the strategy of selling products to customers in F&I, not rate, but be mindful that product sale mark ups need to be within industry standards and defendable.
Good luck and good selling.