Franchised motor vehicle dealers are right to be proud of the work done to exempt themselves from the jurisdiction of the new Bureau of Consumer Financial Protection that will be created by the recently enacted federal financial reform legislation.
The exemption will be important in permitting dealers to work on behalf of consumers to identify and select appropriate finance options. However, there are other shoes about to drop.
BCFP jurisdiction
Not all motor vehicle dealers will be exempt from BCFP regulation. Under the statute, exemption from jurisdiction extends only “over a motor vehicle dealer that is predominantly engaged in the sale and servicing of motor vehicles, the leasing and servicing of motor vehicles, or both.”
All franchised dealers have service operations. Many used-vehicle dealerships do not. Those may find themselves subject to BCFP jurisdiction.
A multi-dealer company that has a separately incorporated used vehicle dealership that does not have a service department may find that the BCFP considers that dealership subject to its jurisdiction.
Buy-Here, Pay-Here Dealer
These dealers will come under the jurisdiction of the BCFP as ones whose “extension of retail credit or retail leases is not routinely assigned to an unaffiliated third party finance or leasing source.”
So if you are a BHPH dealer or your dealership does BHPH transactions at a level that the BCFP will define as routine in upcoming regulations, your dealership will likely not be exempt from BCFP regulation.
Federal Trade Commission
While the statutory exemption relieves certain dealers of BCFP oversight, the financial reform legislation expands the Federal Trade Commission's authority to implement rules with respect to dealers.
With the passage of this new legislation, the Federal Trade Commission has the authority to develop rules about what it considers to be unfair or deceptive practices by motor vehicle dealers under the processes of the federal Administrative Procedures Act that are less cumbersome than the rule-making procedures the FTC previously had to follow.
The Federal Trade Commission has for a number of years eyed F&I practices at dealerships. The FTC may use this new rule-making power to consider regulation of dealer F&I practices.
Office of Service Member Affairs
Highly publicized concerns were raised during the debates on the BCFP dealer exemption about the activities of some dealers in vehicle sales towards military service members and their families.
Because of the publicity, a section of the law requires certain government agencies ensure that “service members and their families are educated and empowered to make better informed decisions regarding consumer financial products and services offered by motor vehicle dealers, with a focus on motor vehicle dealers in the proximity of military installations.”
Finance Sources and Lessors
The biggest shoe to drop for exempt dealers will come from the finance sources and lessors who are subject to BCFP jurisdiction and who accept assignment of retail paper and leases from dealerships. These companies will be subjected to the restrictions of the financial reform legislation, and they are likely to push down onto dealers as many of the compliance burdens and obligations as they can.
In that regard, it is more critical than ever that dealers understand the agreements they sign for indirect lending and leasing arrangements with finance sources and lessors.
Dealers must carefully consider the master agreements they sign when forming indirect arrangements with finance sources and lessors to ensure that they are not unnecessarily waiving necessary protections.
Attorney Michael Charapp of Charapp & Weiss LLP, specializes in representing dealers. He's at 703-564-0220 or [email protected]
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