Compliance States, Feds Continue Scrutiny of Retail Auto Industry

By Jeffrey Bellant

As 2023 kicks into high gear, industry experts continue looking at the challenges of the regulatory environment.

Ignite Consulting’s Steve Levine, partner and chief legal officer, said he’s a seen a “definite, appreciable uptick in regulator issues.”

Things seemed to end quietly on the regulation front at the end of 2022 – “almost too quiet,” Levine said.

Levine heard about a complaint against a leasing company accused of making deals that were retail installment contracts, not leases, and another situation where regulators were picking apart convenience fees.

Concerns over regulatory issues typically relate to federal agencies like the Federal Trade Commission, the Consumer Financial Protection Bureau and the Equal Employment Opportunity Commission.

But Levine said the issues he sees popping up are coming from the states.

“We’re slowly seeing an uptick in regulatory” activity, he said.

On the federal side, the elephant in the room is the Motor Vehicle Dealers Trade Regulation Rule proposed by the FTC last summer.

“If it goes through as proposed, it would be the biggest change I’ve ever seen,” Levine said.

It’s an issue that would be a prime topic for Ignite Consulting’s Compliance Unleashed conference May 22-24 in Dallas, but if the issue re- mains up in the air, Levine is reluctant to make it a topic.

“I don’t think people come there to hear my conjecture,” he said.

Levine said he went to an event where the issue was discussed for an hour, but since the rule hasn’t been codified, the discussion seemed like a waste of time.

Another notable issue on the regulatory front does come from the federal side.

It involves the resignation announcement of the FTC’s only Republican member. Christine Wilson said in February she would be stepping down, calling it a protest against FTC Chairwoman Linda Khan, over her “disregard of the rule of law and due process” as she stated in a Wall Street Journal op-ed.

Eric Johnson, a partner at the law firm Hudson-Cook, responded to the news and its negative impact on the regulatory environment.

He said the lack of a bipartisan commission limits differing opinions.

“A few of us were just talking about the resignation this morning,” Johnson said. “I think it’s bad news for all of the industries that the FTC regulates. The FTC Commission is supposed to have differing voices and opinions (hence the party split requirement) and without those differing voices/opinion, I’m concerned that it’s just a big echo chamber now. Whether it’s a (Democrat) or (Republican) in majority of the Commission, it’s important to have robust discussions and differing opinions about the FTC’s proposed

actions, consent orders, rules, etc.”

The effect on the auto industry and other businesses will not be positive, he added.

“I don’t think this is a positive development at all for the businesses and dealers that the FTC regulates,” Johnson said. “I haven’t heard anything re:proposed new Commissioners (Republican) either by the White House so that’s a concern as well regarding timing.

“Not a positive development at all for many different industries, including dealers.”

There are two other things on Levine’s radar as he prepares for the compliance conference.

One of those involves a lawsuit by the New York Attorney General and the Consumer Financial Protection Bureau against Michigan-based Credit Acceptance Corporation.

In the complaint, the two parties called Credit Acceptance “a predatory auto lender,” and accused it of “misrepresenting the cost of credit and tricking its customers into highcost loans on used cars.”

The plaintiffs accused Credit Acceptance of “hiding the true cost of credit” and “setting up customers to fail.”

Levine said this is another case of regulators going after the issue of “ability to repay.”

CFPB and the state of New York are basically saying that lenders can’t just look at a customer’s income, Levine said.

“You have to look at their ability to repay the obligation,” he said. “I think everybody’s going to have to pay attention to that,” Levine said. Saying you will “approve everybody” can be risky.

“According to regulators, you can’t say that,” he said. “Because it all has to do with the ability to repay and it’s not just the down payment. It’s whether they can come up with the money every month or are they, in effect, just renting a car.”

Levine said regulators want creditors to know whether their customer can actually afford the payment over time. It’s not about down payment as much as it is about weekly or monthly living expenses.

The other proposed rule that Levine blasted was the FTC’s proposal to ban non-compete clauses, which it claims present an unfair method of competition.

Levine said it’s so broad there’s no “carve out” for the sale of businesses.

Levine had a real-life example of why this is a bad proposal. A dealerclient of his had a general manager who had worked for the dealer for over eight years. But the dealer never required a non-compete clause.

“The GM leaves the dealer, opens up two blocks away and basically uses everything he learned and every relationship he developed against the dealership he left,” Levine said.

A recent public hearing on the rule heard from people both opposed and in favor of the rule.

The regulatory environment is a battlefield for dealers.

“The stakes have been raised,” Levine said.