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Inside this issue
Opinion: The CFPB and the Emperor's New Clothes
GM Recalls 1.7M More Vehicles; Barra Vows to Revamp System
Toyota Dominates CR List of Best Used Cars with 11 Models
European Car Sales Rise 8% in February as Region's Economy Revives
Ford's Russian Joint-Venture May Cut Production Amid Weak Economy, Crimea Situation
Apple Invades Cars' Center Stack
Click here for more auto industry news at NADAFrontPage.com. .
Top Stories
Opinion: The CFPB and the Emperor's New Clothes
By Randy Henrick

The CFPB's recent consent order with Ally Bank reminds me of the Hans Christen Anderson children story “The Emperor's New Clothes”. In that story, a vain emperor who wants to be the best-dressed person in the world hires a pair of tailors to outfit him. Upon presentation of his new clothing, the tailors tell the emperor they have dressed him with a fabric invisible to anyone who is unfit for his position or “hopelessly stupid”. The Emperor's ministers cannot see the clothing themselves, but pretend that they can for fear of appearing unfit for their positions and the Emperor does the same. The Emperor marches in a procession before his subjects .... Then a child in the crowd, too young to understand the desirability of keeping up the pretense, blurts out that the Emperor is wearing nothing at all and the cry is taken up by others. At that point, the game is over. The CFPB reminds me of the Emperor. They must know that the legal arguments they hope to validate in the Ally Bank Consent Order will not hold up in a court. My fear is that other lenders will be like the Emperor's ministers and go along for fear that they will be the next entity upon which the CFPB will try to impose similar conditions and thus they go along as well ....

Like the Emperor, the CFPB has to know that its statistical and legal analyses that were effectively forced onto Ally are questionable at best. In the last two Supreme Court terms, cases that challenged the validity of a “disparate impact” claim under the Fair Housing Act (which has identical language as ECOA) were settled by the Department of Justice before the Supreme Court had to opportunity to hear arguments. Why do you suppose that happened? No federal appellate court has ever upheld “disparate impact” as a legitimate cause of action under ECOA and the D.C. Circuit questioned its validity. ECOA's Regulation B is very clear on when a subsequent creditor is liable for the discriminatory acts of a prior creditor (this assumes the dealer, the prior creditor, somehow violated ECOA). Lender liability in indirect auto finance requires one of two circumstances: Either the lender participated in the credit decision including setting the terms of credit or “the person knew or had reasonable notice of the act, policy, or practice that constituted the violation before becoming involved in the credit transaction.” ...

NADA's Fair Credit Compliance Policy and Program, released on January 24, 2014, represents an excellent approach to compliance that the DOJ first used in two cases settled in 2007 (Pacifico and Springfield Ford) and then repeated as a means to comply in its testimony at the CFPB hearing in November 2013. Briefly summarized, here's how it works: You charge finance customers on a uniform basis over the wholesale buy rate. This can be a fixed number of basis points over the buy rate, a fixed percentage of the amount financed, or a fixed dollar amount. The two 2007 cases both involved establishing a uniform dealer participation rate that is applied to all customers unless one of seven legitimate business reasons apply in which case the standard rate could be reduced, but never increased ....

A dealership should have the ability to add additional nondiscriminatory legitimate business reasons provided they are limited to neutral, pro-competitive factors that are completely unrelated to the customer's status as a member of a protected class and are executed in good faith. These reasons would have to be specifically identified in advance as an open-ended category of “Other” could provide the basis for a lender or regulator to claim the dealer was discriminating on the fly. By adopting such a program, documenting for each deal any variations by indicating the applicable reason and including supporting documentation (such as a customer's commitment from a competing finance source at a lower rate), the dealer is best positioned to defend a disparate impact claim. If you have not read the NADA policy, I encourage you to do so as it provides a conservative framework to set yourself up in the event a lender or regulator wants to audit your compliance.

Until the young boy states that the Emperor has no clothes, likely coming from a lender defending an enforcement action in a federal court (at which point I suspect the rules of the game will change radically), you will continue to be periodically audited by some of your lenders. The NADA Policy or another program designed in a similar manner is how you can best respond. To date, we have not seen lenders push for flats on a widespread basis which is the CFPB's ultimate goal.
Source: Dealer Communications

Editor's note: Randy Henrick is associate general counsel and lead regulatory and compliance Counsel for DealerTrack, Inc. This with reprinted with his permission.

For more information on the NADA Fair Credit Compliance Policy and Program, go to www.nada.org/faircredit.
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GM Recalls 1.7M More Vehicles; Barra Vows to Revamp System

General Motors Co. is recalling more than 1.7 million cars, vans and SUVs and will revamp its system for overseeing safety recalls. Monday's callbacks are separate from last month's image-bruising recall of older Chevrolet Cobalts, Saturn Ions and other cars with bad ignition switches that are linked to 12 deaths. In a four-minute video message to employees, released by GM Monday, CEO Mary Barra said “something went wrong with our process in this instance and terrible things happened.” ... GM is expected to announce its creation of an executive position to head the company's global safety efforts, two people briefed on the plans said. Barra, who became CEO in January, said in the video that the automaker's system for “deciding and managing recalls is going to change because of this, and we're using this opportunity to change much more about our business.” The automaker said a review by Barra helped speed the latest recall of certain 2008-13 SUVs; some 2009-14 vans; and the 2013-14 Cadillac XTS for three separate safety problems. GM said no crashes or injuries have been reported in the three new recalls.
Source: The Detroit News

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Toyota Dominates CR List of Best Used Cars with 11 Models

Consumer Reports has named its best used vehicles for the 2004-13 model years, and the Toyota family is a favorite, with 11 vehicles named to the list. The magazine listed the top small cars, sedans and SUVs that performed well in testing and had above-average reliability. In the $15,000-to-$20,000 range, the 2012-13 Hyundai Elantra and 2011-13 Subaru Impreza were named the best small used cars to buy. The magazine said that these vehicles were as roomy and comfortable as larger, more expensive vehicles. The 2011-2012 Toyota Camry, 2010-11 Toyota Camry Hybrid and 2008 Acura TL were selected as the best sedans that could be found on the used-car lot for between $15,000 and $20,000. Fuel economy, reliability and a comfortable ride were all cited as reasons these three vehicles stood out. In the SUV segment, Consumer Reports tapped the 2006-07 Lexus RX and 2009-10 Subaru Forester as the best. The magazine praised the Forester as having easy access and the best view among the tested SUVs. Overall, the magazine recommended 28 vehicles, with 11 of them coming from the Toyota, Lexus and Scion brands and six from the Honda and Acura family. Just three vehicles from the Detroit three found it onto the list, including the Pontiac Vibe, which was built and developed with Toyota.
Source: Automotive News
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European Car Sales Rise 8% in February as Region's Economy Revives

European car sales rose by nearly 8 percent percent in February, the sixth consecutive monthly gain, as a gradual economic revival in southern Europe and price cuts helped to boost demand for new models. Registrations in the EU and EFTA markets increased to 894,730 vehicles from 831,371 a year earlier, industry association ACEA said in a statement. Two-month sales jumped 6.3 percent to 1.86 million cars. Most of Europe's major automakers, except Volkswagen's core passenger cars brand, posted gains in February.
Source: Automotive News
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Ford's Russian Joint-Venture May Cut Production Amid Weak Economy, Crimea Situation

Ford Motor Co.'s Russian joint-venture may halt vehicle production at one assembly plant for as long as two months because of fragile economic conditions and the ongoing geopolitical battle over in Ukraine. Ford Sollers may idle an assembly plant near St. Petersburg, which manufactures the Focus compact and Mondeo midsize cars, according to a report in multiple Russian media outlets. Sales of cars have fallen and one-in-three new-vehicle purchases in Russia is an SUV. Ford and Ford Sollers have plans to triple capacity in Russia to about 350,000 in coming years. “The ongoing weakening of the ruble puts additional pressure on the Ford Sollers business,” Ford Sollers said in a statement. “As always, we are constantly monitoring the overall economic situation and will act according to the changing environment.”
Source: The Detroit News
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Apple Invades Cars' Center Stack

Apple's new CarPlay system lets drivers use their vehicle touch screens to access the company's apps for music, phone numbers, route guidance, e-mails -- you name it. So is Apple, which unveiled CarPlay this month at the Geneva auto show, poised to take over the center stack? Will the tech giant connect directly with motorists and muscle aside automakers for control of vehicle infotainment?
Source: Automotive News
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More Articles
 
Quotable

"NADA's Fair Credit Compliance Policy and Program, released on January 24, 2014, represents an excellent approach to compliance that the DOJ first used in two cases settled in 2007 (Pacifico and Springfield Ford) and then repeated as a means to comply in its testimony at the CFPB hearing in November 2013."  

    -- Randy Henrick, associate general counsel and lead regulatory and compliance Counsel for DealerTrack, Inc., in an opinion article in Dealer Communications, March 4    

  

NADA Market Beat
Cold February Weather Dampens Light Vehicle Sales
Chairman's Column
NADA Releases Fair Credit Compliance Program for Dealers
Videos

 Meet NADA Chairman Forrest McConnell (NADA-TV)


NADA Used Car Guide's Jon Banks Highlights Feb.'s Guidelines (NADA-TV)

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NADA University Webinars
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-- March 19: Comply with Federal Advertising Requirements

-- March 26: Participate in the NADA Dealership Workforce Study

-- April 2: NADA’s Fair Credit Compliance Program

-- April 3: Tips for Submitting a Great Workshop Proposal 

NADA Foundation News
New Orleans' High Schools Receive CPR Training Manikins

ADESA and NADA Donate $37,000 to Canine Companions

NADA and Ally Donate $50,000 to Second Harvest Food Bank in New Orleans 

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