By Nick Zulovich, Editor
LAS VEGAS – Maybe you heard it spoken
in a 20 group meeting or around the lunch table at the auction. There’s one
buy-here, pay-here operator telling another, “I’m not worried about the CFPB.
I’m just a small guy with 20 cars on my lot and less than 1,000 active
accounts. I’m sure those big guys will go chase the big fish.”
For BHPH dealers who think that way, Rick Hackett offered a
strong warning. The Consumer Financial Protection Bureau is intensifying its
regulatory aim at this industry. And Hackett should know; he spent about two
years at the CFPB before officially joining Hudson Cook in March.
“The bureau focuses on the risk of a product to consumers,”
Hackett said during a panel discussion during the National Conference hosted by
the National Alliance of Buy-Here, Pay-Here Dealers recently
in Las Vegas.
“Buy-here, pay-here is viewed as a high risk product because
it’s expensive and it’s given to folks whose financial lives are relatively
volatile, and therefore, it’s a risky situation from the perspective of
consumer outcomes,” continued Hackett, who formerly was the head of the Office
of Installment and Liquidity Lending Markets in the Division of Research,
Markets and Regulations at the CFPB. His responsibilities at the bureau
included advising all of the regulator’s divisions with respect to market
information and policy issues in the installment and specialty lending areas,
including vehicle finance, student lending and payday lending.
Hackett acknowledged a small BHPH operator might have
avoided significant CFPB scrutiny when the bureau first began to issue
enforcement actions against large industry players such as Ally Financial and
US Bank. Now, times are definitely changing.
“Two years ago, I would say you could stay off the radar by
having a low profile and being small,” Hackett said. “That might have been true
with the original activity at the bureau when it focused on the largest players
in this space. Now, I’m pretty sure that’s not true anymore that being small
will keep your radar profile down.”
A host of NABD Conference attendees all pondered the same
question: What triggered this response at the CFPB?
“Complaints are really important to the CFPB, and service
member complaints are 10 times more important,” Hackett said.
Hackett continued that point by sharing two other theories.
“What we’re seeing from CFPB consent decrees is they will
typically look for a technical non-compliance point of leverage – a Truth in
Lending mistake that happens every single time you make a contract – in order
to then leverage the consenting party into agreeing that other things won’t
happen anymore,” he said.
“Unless you’re talking with large companies that have to
make a securities disclosure, it’s really hard to figure out exactly what’s
going on out there,” Hackett continued. “I’ve talked to some lawyers who have
seen (civil investigation demands) for small buy-here, pay-here dealers. That
suggests to me that the initial process has changed and smaller companies are
being looked at. My hypothesis is that these involve locations close to
military bases or some other reason why there’s a crosshair of risky product in
In the short-term, Hackett offered a recommendation.
"The more your technical compliance is buttoned
up, the more likely it is that it will survive an investigation with very
limited damage,” he said.
Editor’s Note: Future
issues of BHPH Report will offer more analysis and guidance from industry
experts so operators can enhance their compliance processes.