By Thomas B. Hudson and Nicole F. Munro
In November, President Trump left a brand-new pro-industry Consumer Financial Protection Bureau Director under the auto finance and lease industry’s Christmas tree. This should make for an interesting 2018 for all of us. This month, we also report on activities of the House and Senate, the Federal Reserve Board, the Federal Trade Commission, the Government Accountability Office, the Department of Defense and the Consumer Financial Protection Bureau. As usual, this month’s article features our “Case of the Month.”
Note that this column does not offer legal advice. Always check with your lawyer to learn how what we report might apply to you, or if you have questions.
This Month’s CARLAWYER© Compliance Tip
Check out the Department of Defense item below. If you sell and finance cars to military personnel, including military dependents, you need to get some quick schooling on what the DOD says is permitted and not permitted in connection with those transactions. You’ll likely need your lawyer’s help on this one. Also, you should contact your consumer reporting agency about how to obtain MLA covered borrower status or get to know the Department of Defense’s website at https://mla.dmdc.osd.mil/mla/#/home.
CFPB Leadership Shakeup. On November 24, Richard Cordray resigned as CFPB Director and appointed his chief of staff, Leandra English, to become deputy director. A few hours later, President Trump appointed Mick Mulvaney, the director of the Office of Management and Budget, as acting director of the Bureau until the Senate confirms a permanent director, setting up a conflict with Cordray’s appointee. English then sued Mulvaney and the president in federal court, asking the court to restrain Mulvaney from heading the Bureau until a permanent director can be nominated and confirmed. Two days later, the judge denied English’s request for a temporary restraining order, and has not yet issued a decision on the merits of English’s claim that she has the authority to serve as acting CFPB director. Stay tuned.
Blocking Another CFPB Rule? On December 1, a group of House Democrats and Republicans introduced a bill to block the CFPB’s so-called “small dollar rule” (regulating payday and title loans, among others) from going into effect. The proposed legislation exercises authority under the Congressional Review Act to prevent the rule from becoming effective on January 16. The CRA provides a procedure by which Congress can disapprove of rules issued by federal agencies within 60 legislative days of such rules being submitted to Congress for review. If both the House and the Senate vote to disapprove a rule, the agency may not issue any rule in substantially the same form in the future. Earlier this year, Congress used its CRA authority to block the CFPB’s arbitration rule. Remember the late-night tiebreaker vote by Vice President Pence?
CFPB Bulletin Deemed to be a “Rule,” and Invalid. On December 5, the Government Accountability Office opined that the CFPB’s March 2013 bulletin on auto finance and compliance with the Equal Credit Opportunity Act constitutes a “rule” subject to the Congressional Review Act. Because the CFPB did not submit the bulletin for review, the 60-day review period never began to run and the bulletin is considered not yet effective. The controversial bulletin provided detailed expectations about steps indirect auto creditors must take to monitor differences in average retail and wholesale interest rates (so-called “markups”) between protected groups and non-protected groups under the ECOA. The bulletin also detailed the Bureau’s expectations for corrective action when a creditor identifies disparities for individual dealers or within its portfolio as a whole.
How Can the CFPB’s Ombudsman Help You? On December 6, the CFPB’s Ombudsman’s Office released its annual report. The report describes how the Office can assist consumers, financial institutions, and others with a question, concern, or complaint regarding a CFPB process.
Federal Reserve Board Does Some Rule Housekeeping. On December 18, the FRB proposed a rule that would revise its Reg. M, issued to implement the Consumer Leasing Act. Before the enactment of the Dodd-Frank Act, the CLA was implemented solely by the Board’s Reg. M, which applied to all types of lessors. The DFA transferred rulemaking authority for the CLA to the CFPB; however, the FRB retains authority under the CLA to issue rules applicable to dealers exempt from CFPB rulemaking jurisdiction. The FRB is proposing to revise its Reg. M and its accompanying Official Staff Commentary to reflect this change. Comments on the proposed rule are due within 60 days after publication in the Federal Register.
Atten-Hut! On December 11, the Department of Defense released an interpretive rule for the Military Lending Act to provide additional guidance to industry regarding compliance with its July 2015 final rule amending the MLA’s implementing regulation. The July 2015 rule amended the regulation to extend MLA protections to a broader range of closed-end and open-end credit products. In August 2016, the DOD issued a Q&A interpretive rule to help industry comply with the July 2015 rule. The current amendments to the interpretive rule provide new Q&As in an effort to provide additional guidance concerning compliance with the July 2015 rule, but raise serious questions regarding the sale and financing of ancillary products.
Case of the Month
In what actually is not a case, but an important enforcement action, Cowboy AG, LLC, a Texas buy-here, pay-here dealer doing business as Cowboy Toyota and Cowboy Scion, recently agreed to settle FTC charges that it used deceptive ads in a regional Spanish-language newspaper. On December 8, the FTC published a description of the proposed settlement agreement in the Federal Register for public comment. The FTC will decide whether to accept the proposed agreement or take other action after it reviews the comments.
The FTC alleged that Cowboy’s ads buried fine print English-language disclaimers that contradicted the ads’ more prominent Spanish-language claims. As part of the proposed settlement, Cowboy has agreed that when it must make any information “clear and conspicuous” under the Truth in Lending Act and the Consumer Leasing Act, it will ensure that the information is easily noticeable and easily understandable by ordinary consumers, including a requirement that its disclosures “must appear in each language in which the representation that requires the disclosure appears.” This means that Cowboy must provide Spanish-language disclosures in its Spanish-language ads.
Although the FTC has consistently included this foreign language requirement in the definition of “clear and conspicuous” in Section 5(a) FTC Act settlements, this proposed settlement represents an expansion of the foreign language requirement into a settlement that includes TILA and CLA claims. Moreover, it appears that the FTC has announced this broadened “clear and conspicuous” standard through this proposed settlement, instead of through the proper course of notice and comment rulemaking. Because the FTC does not have rulemaking authority under TILA (that authority rests with the CFPB), the FTC appears to be doing by enforcement what it cannot do by rulemaking.
The proposed settlement is against one Texas dealer, but it could create a potentially wide-ranging TILA/CLA reinterpretation of the “clear and conspicuous” standard in ads. If you advertise credit terms in a language other than English, see your lawyer, because the Cowboy settlement reflects the FTC’s apparent position that it may be unlawful to provide related TILA-required information in English.
So, there’s this month’s roundup! Stay legal, and we’ll see you next month.
Tom (firstname.lastname@example.org) is Of Counsel and Nikki (email@example.com) is a Partner in the law firm of Hudson Cook, LLP. Tom has written several books and is the publisher of Spot Delivery®, a monthly legal newsletter for auto dealers. He is the CEO of CounselorLibrary.com, LLC and the Editor in Chief of CARLAW®, a monthly report of legal developments for the auto finance and leasing industry. Nikki is a contributing author to the F&I Legal Desk Book and frequently writes for Spot Delivery®. For information, visit www.counselorlibrary.com. © CounselorLibrary.com 2018, all rights reserved. Single publication rights only, to the Association. (1/18). HC/4839-3027-8746v1.