Shelley Fowler is the managing editor of Spot Delivery. One of her chores is to remind me once a year, usually in January, to write an article making some predictions for the new year. These articles are a lot more fun to write than the follow-up articles I write explaining why none of last year’s predictions came to pass. So I’ve hauled out the cracked and smudged crystal ball and peered at tea leaves and chicken innards, and, because I don’t mind public humiliation so much, here goes.
The Consumer Financial Protection Bureau will follow up on its BHPH enforcement action against Herbies, announced in late January, with several more high-profile, noisy attacks against BHPH dealers. Those attacks will change the BHPH business model in some fundamental ways. You can count on the CFPB’s enforcement targets being smaller companies that lack the means to fight a government bureaucracy with a bottomless war chest, and you can bet that the CFPB’s tactics won’t change. In those enforcement actions, the Bureau will quickly find a couple of slam-dunk technical violations and use them to leverage one or more of its aggressive, and sometimes questionable, positions to extort large-dollar settlements from hapless dealers who lack the resources to defend themselves.
The CFPB is duking it out with Congress on the Bureau’s methodology in bringing enforcement actions asserting illegal credit discrimination practices by car dealers and finance companies. Both sides have landed some blows in this bout, with the CFPB basking in a U.S. Supreme Court opinion that held that the “disparate impact” theory, one of the Bureau’s most formidable weapons, is valid under a housing law. Industry found support in that same opinion, pointing out that the housing law involved in the case is worded differently from the Equal Credit Opportunity Act in some critical ways and that the Supreme Court opinion contained a lot of language about the difficulty of proving disparate impact cases. Late in 2015, the House passed a bill requiring the Bureau to withdraw an earlier advisory and imposing procedural limitations on further Bureau anti-discrimination enforcement and policy-making efforts. The bill might, but likely won’t, get through the Senate, but even if it does, I can’t see enough support to make it veto-proof.
You can kiss mandatory, pre-dispute arbitration agreements goodbye. The Bureau wrapped up its “study” of the use by dealers and creditors of these agreements in 2014. The study, mandated by the Dodd-Frank Act, also gave the Bureau the authority to regulate, and even to ban, the use of such arbitration agreements. The studies appear to have been carefully calibrated to support an anti-arbitration agenda that the CFPB has been pushing since before the ink was dry on President Obama’s signature on the Dodd-Frank Act. The Bureau has signaled that it won’t ban pre-dispute arbitration agreements outright, but will instead ban class action waivers in the agreements. Since the principal reason that creditors employ arbitration agreements is for protection against class actions, the Bureau’s proposal is, from a practical standpoint, a ban. We thought we’d see a proposed rule in 2015, but that didn’t happen. We will likely see a proposed rule in 2016 and perhaps a final rule in 2016 that will become effective in 2017.
For reasons I can’t fathom, the Federal Trade Commission has decided to stick its nose into the battle between the automotive franchise distribution system and manufacturers’ direct-to -consumer sales models. It’s hard to tell how much of the FTC’s energies will be directed toward that topic, but I’ll take a stab at other FTC priorities. I predict that the FTC’s primary focus on car dealers will shift from advertising (although until dealers realize that their ads are full of violations and are an enforcement magnet, the FTC’s ad crackdown won’t go away) to areas such as abusive spot delivery transactions, payment packing, privacy and data security, and unfair and deceptive practices in the sale of “certified” vehicles.
Once again, I’ll pack away the crystal ball with a prediction of a non-event. In an article two years ago, I said, “Despite what all of the Bureau’s critics say and how loudly they complain about its actions, the CFPB is not going away, and it isn’t going to back away from its aggressive enforcement of federal consumer financial services laws. The cost of compliance at regulated entities will increase substantially, and the economics of compliance spending will begin to drive industry consolidation in response.”
You can still take that one to the bank