Legislation in auto finance: What’s on the horizon? |

Amanda Harris 00:08
Hello, everyone and welcome to our fourth quarter webinar presented by auto finance excellence, a sister service to auto finance news and industry source for best practices and actionable advice for auto finance professionals. I’m Amanda Harris, Associate Editor of auto finance news. Thank you for joining us. Auto Finance excellence through the generous support of McGlinchey provides members with an unparalleled opportunity to gain professional developmental and networking resources in this competitive industry. We intend for auto finance excellence, not to just guide industry executives, but to inspire them to greater success. We have two very special speakers to address a topic of discussion for today’s webinar, which is focused on potential changes to come at the Consumer Financial Protection Bureau as a result of the 2020 election. California also recently established the state’s Department of Financial Protection and innovation, which will house their Consumer Protection Division, furthering the state’s oversight of lenders. The rise of a state driven consumer protection agency, along with the presidential election results brings important questions to mind when it comes to legislation within the auto finance industry. Joining me today is Brian Fink, an attorney in McGlinchey, his consumer financial services compliance group, and Bob Driscoll, a co chair of McGlinchey government and internal investigations team. Frank has an extensive background in government and financial services having held multiple supervisory roles within the CFPB. he advises financial institutions and a broad range of compliance, government investigations and regulatory matters. And Bob is a former to the Deputy Assistant Attorney General and Chief of Staff of the Civil Rights Division of the US Department of Justice, be counseled corporations, financial institutions, and government entities and individuals in judicial proceedings, government and internal investigations and criminal and civil cases. Gentlemen, thanks so much for joining us today. Thank you for having us. Well, let’s go ahead and dive into our first question to get this conversation started. As I stated earlier, California recently created their own state level regulatory agency. Why do you think they created this? And what does that say just about the state the status of the CFPB and regulation post election? And, Bob, you want to start us off there?Bob Driscoll 02:42
Sure, I’ll just try to broadly raise the issue and then hand it off to Brian, I think one of the big things is the state level type of regulation is kind of a seesaw effect of what happens when the federal, you know, regulatory regime becomes a little more business friendly, which is what happened during the Trump administration, I feel like more states that want to be more aggressive in consumer protection, will then feel empowered to do their own thing. And it was one of the the benefits for states of the CFPB being stood up, was the act gave the states the ability to set up their own kind of mini CFPB and enforce some of these rules and regs themselves. And that’s exactly what we’re seeing California. It’s a very kind of robust system in California. And I think kind of would be talking about it, regardless of what happened with the election this time. But I think it’s a it’s a huge it’s a huge development. And I think, frankly, it shows that balance of federalism, you know, people always talk about in Washington about the degree to which sometimes you like a uniform strong system, that you have uniformity, if you’re a 50 state business. And sometimes, you know, if you if you want to weaker, so to speak, more business friendly federal regime, you might end up with state regimes like California. So they probably can talk about some of the specifics, and particularly in the indirect auto lending, I think, well, it will have an impact on. So Brian, what we found when we looked at those, that statute. Yeah. And before I dive into that, let me just a little bit more on the why as well, when you think about the Cordray era versus the current the past four years, that there are marked differences in the regulatory world, where instead of moving forward with cold, aggressive regulation,Brian Fink 04:29
to change where the regulations have been pared back and made a little softer and more friendlier, the kinds of regulations coming out really would cabin, the bureau as opposed to emerging powers. So you see that you also see the enforcement area where you have a lot of lawsuits and a lot of high dollar awards to the Bureau and in civil fund. When you started last four years, you saw a much smaller number. Overall, the averages have been coming up lately. But the number of suits in the dollar awards have been much different, much smaller. So I think states as a response, have wanted to talk about the federalism they want to impose or continue that momentum at the CPB started from the consumer side from the regulatory side. They wanted to follow through with that particular mission. I think a number of states have come out with something like this. So Virginia, Pennsylvania, I mean, not not exactly California, California has its own thing. But the other states have centered people in enforcement divisions in his office, they’ve put resources like New York, where they have supervision and enforcement all in one spot now and be more aggressive and focused on consumer issues. Do you see that a number of states, but the California did is they created this whole new regulatory scheme, where we have a true CFPB light kind of structure. So you have the potential licensing or something of your doesn’t currently do potentially could. But you could use a licensing regime you have, you’d have authority, you have a set of laws that will apply to people who haven’t been subject to these before you have all essentially lenders who aren’t properly licensed will be subject to this, and their service providers. So this is all new in Bob’s point earlier. So what does this mean for for folks in the auto industry? Well, if you’re not currently licensed in California, in your lending in some capacity, this law can reach you. There are no I mean, I think that the way it’s set up, the state could impose regulations requiring licensure, I think they exist quite yet. But that’s something that could come. So for folks who aren’t currently licensed, it’s something to pay attention to. So we’re working into compliance now.Amanda Harris 06:47
And you kind of, you know, started to touch on this a little bit. But you know, of course, California is the second largest auto finance market. So, you know, I wanted to see if you want to expand a little bit on, you know, what their extended oversight, you know, could mean for auto lenders, and if there’s any other, you know, kind of aspects that lenders should be thinking of, or preparing for knowing that, you know, maybe other states, you know, could follow suit, or there’s some other things they should be thinking about, one of the things I did is created a budget, multi million dollar budget for enforcement attorneys, and supervision people. So now you have a regime where you will say you weren’t licensed, you weren’t subject to any supervision from California, potentially. Now you are. So we’ll look at what your practices are, how you originate, how do you purchase? What is your role in the auto industry? What laws impact that role? And what can you do to manage your compliance, and what kind of consumer complaints which of those mean, are the servicing issues? So the soup to nuts, auto world would be potentially covered by this. And so if you don’t currently have operation or compliance management systems in place to manage requirements of the laws, especially the EU debt provision, it’s important to start building those in so other states and alternative items. The second but I think the other states, you have more enforcement perhaps going on now you have people more attuned to these issues. I don’t know that it’s created quite this structural structural change the California has, but certainly they could if they perceived the CPB as continuing to be slightly less than what was in their eyes.Brian Fink 08:24
Or if they think that it’s important, irrespective of what the bureau does in the future to build up their own compliance and super supervision and enforcement practices or regime.Bob Driscoll 08:37
Add to that is is in California, and frankly, any of the states CFPB. As they come up, one of the things to remember is and some of these issues, take for example, disparate impact or civil rights issues related to you know, some sort of disparity by race or by gender or by protected class. When you’re dealing with state level laws in those areas. There may be separate state authority from them. And lots of the defenses that people are used to raising on the federal side, for kind of those kind of things are well, is there authority for the CFPB to do what it does? Because the you know, the the statute of cola or something like that has specific language and does the regulation drift further from language? You get into 14th amendment protection issues and whether or not certain legislation is authorized. Does Congress have the constitutional authority to issue regulations of certain things or doesn’t run afoul of kind of protections the constitution offers everybody on the basis of race or protected class status. And then if you’re on a state level, though, a lot of these states have independent bases to issue certain kinds of civil rights laws, as well as kind of general health and welfare protection states generally, you know, do not run into the same question if federal authorities per se have limited authority as drivers. The Constitution then derived from statute, then you get down to whether the regulation complies with both of those state levels usually a lot simpler, which is the state wants to regulate something generally can. And so it won’t just be a, you know, shift f7 type of thing. And everyone copies all their arguments and briefs, they’re using the federal level, for example, the indirect lending wars of you know, five years ago, you may have new, new bases, the states may be creative about how they do that, because they may want to avoid tracking federal specifically, and we’ll talk about later because of the impact of the Congressional Review Act and other kind of things that have happened at the federal level.Amanda Harris 10:38
Absolutely. And one thing, I too wanted to expand on what we’re talking about, you know, California and state driven, you know, kind of regulation is, you know, could could California decision kind of be example of states wanting more oversight of financial service providers? I mean, could we see other implications where regulation kind of gets stepped up on a state level? And what will that kind of mean, you know, going for for the auto finance, industry and financial services industry in general. You know, it’s a thought there that we are wanting to see more, that kind of California specific.Bob Driscoll 11:14
I mean, I think so I think we could see more. I mean, not not to make light of it. But you know, the old saying, you know, what, why do people rob banks, because that’s where the money is, you know, I think one of the things is going to be attractive, in times of financial strain, or all of a sudden, people are gonna realize, you know, when California starts to rack up some fines under these things, and they have some pretty hefty statutory authority, not quite CFPB level, fines, but close. You know, these things can become kind of self funding. And, you know, there’s nothing a government bureaucracy likes more than having the ability to have a self funding operation, where you get the kind of benefit of, you know, protecting consumers, in their view, holding press conferences, talking about how what a great job they’re doing, and don’t have the corresponding problem of raising someone’s individual taxes in order to pay for all that. And that can be an attractive model. For for more states. Now, obviously, it’s going to create as a potentially great a patchwork problem and different issues have dealt with that different ways over time. But I think, surely, depending on how much California succeeds and put that in air quotes, in terms of racking up some serious fines against industry, financial, consumer financial services industry, I think other states are going to look at this and say, you know, Boy, that’s that’s, that’s something we should look at. I think it’s analogous to New York department financial services, as you know, really jumped in on the federal side with respect to larger banks, you know, money laundering, those kind of things, is they realized they have the authority to do it. And so they just kind of jump in at the table. At the end, when there’s federal cases about OFAC violations or anti money laundering provisions not being followed, the state jumps in and takes a big chunk of millions and millions of dollars, I think you’re going to see states realizing that both tagging along federal actions and bringing their own in order to self fund their own operation.

Brian Fink 13:20
And I would add, I think it’s fair to say that all states currently, just right now baseline, they’ll have laws and regs and they change all the time. I don’t think anyone watching this would think that they’re lightly regulated, and that there’s been no state impact in the state governance, it’s probably not the case. So there is a potential, certainly that you’ll see an increasing or continuing trend where states do beef it up. But will you see that in all states? That I don’t know, the states so far? So if you see a theme, so we have Virginia, Pennsylvania, Maryland, Massachusetts, Delaware, New Jersey, California, New York, those are the states that have either announced some sort of mini CFPB or California, of course, with this with this legislation. That I’m not saying they’re all blue states, we’re not saying they’re not I don’t know that you’ll see the same appetite in all states. It’s where is it consumer friendly, really consumer friendly? Where are those states motivated to do this kind of a thing? Certainly the role of a free regulatory agency can’t be denied. But I think that it may be different depending on the jurisdiction.

Bob Driscoll 14:24
Oh, for sure. That and that’s definitely, you know, we’ve seen that in other areas, and I definitely be the case that again, I don’t think it’s a it’s a mystery. I think that you know, we will be surprised to see Texas adopt a similar regime. Tomorrow, we’d be surprised to Oklahoma do it. You can kind of look at the different meanings of the good a good thing to check if you don’t go in the big reason for people on this call to go. But just check your website once in a while. We can look at the meetings or the means a republican or democratic turn generals in Washington once a year. Where they set agendas. And that’s where you’ll see, that’s where a lot of these ideas come from. You know, there’s a lot of model legislation shared and things like that. And those are things to keep an eye out for your home jurisdiction. jurisdictions do a lot of business and to see what kind of rumblings are there, but I do think it will not be uniform. But I think, you know, a lot of the states are inclined to go this route are going to keep a close eye on California, and California having success will, could drive more aggressive and particularly for for me, as a, someone who’s done government investigations work and represent some people in some CPV matters, this per day fine notion that the CFPB started with with increasing, that ends up really being the hammer for for a lot of a lot of things, because again, for willful violation up to, you know, a million dollars a day or whatever you want to do. 5 million. I mean, it just is that is such a hammer that when you’re negotiating with them on something like that, basically, they’re starting at infinity and say, Well, you know, it comes more of a what what can we find you and you stay in business negotiation, rather than a working upwards from you had a problem with X number of loans, the total X amount was x percentage of the loan that we think was an overage, that that whole calculation was the window, it starts working backwards from, we have the right to tag you for X dollars per day for even operating in the manner you’re operating, if they find a a broad policy contravenes a regulation or statute in their interpretation of it. And I think that’s the type of thing that I mean, I don’t want to be apocalyptic about it, that this will all definitely happen. But I’m saying these are the things to keep an eye on. And it’s likely that California will be the leading edge of this.

Amanda Harris 16:47
Absolutely. And, you know, Brian kind of mentioned, a good lead into my next question with, you know, this is happening in certain states. And we know, certain things look a little different. And obviously, there is a political climate that we have to think about in this as well. And so, of course, we now have a president elected that’s been named with the election. How quickly, you know, could we see part of like, you know, that would really drive some of these changes is if we see a new leader come in for, you know, the CFPB. So in our thoughts, how quickly could we see that change in leadership? And, you know, as a result of a change, possibly in the level of regulatory oversight? Right, doesn’t it depend What? Well, I think it’s the senate want that. That will define I think all what’s about to happen. If you have 50, Democratic senators in the Senate, President Elect Biden will get his choice. And you’ll have the bureau back to business, if you don’t have 50, Democratic senators, maybe President Elect Biden doesn’t get his choice, it has to settle for a very moderate sort of director. And I think agenda can be very different based on those results.

Bob Driscoll 18:01
Right. And I think you need to, you need to kind of divide this up into categories from Washington perspective, you know, where we sit. The first is kind of the legislative agenda. And I think that I think everyone in Washington kind of have the view that legislatively, we’re going to kind of be at equipoise, one way or another, they’ll either be a very it’ll be a bear Democratic majority in the Senate with, you know, Vice President Harris breaking the tie if the democrats want both seats in Georgia, or there will be a small Republican majority in the Senate, which would have the ability to block would have the ability, absent filibuster modification to block in any way. But, you know, McConnell, and Republicans will have the ability to block things. So essentially, I think we’re at one of those times where major legislation is going to either have to be broadly bipartisan and on a relative basis, non controversial, or it’s not going to go through. So I don’t think, you know, you will see huge regulatory reform from a statutory level coming, you know, right out of the box. But then the things that can change are obviously, political appointees change and are fully generally in control of the executive branch, subject to send a conference confirmation at some level. So DOJ, for example, with a new Attorney General, will get a new assistant attorney general for civil rights. Those might take a little bit of while to get confirmed, maybe first six months administration. But obviously, there could be a dramatic difference in terms of how those folks interpret the laws that are already on the books. We have an interesting twist here that I think the auto finance industry would would, you know, be sensitive to, which is the Congressional Review Act is a is an act by which Congress can overrule essentially by joint resolution regulations on an agency that disagree with obviously, the indirect auto guidance that have been issued, was one of the times Congress used the rough Review Act. to override that, that guidance and kind of take that off the table, they’ll obviously be all of you have dealt with lawyers, I don’t want to demean my own profession. But you know, we can be creative. And if there’s a new group in there, you know, there will probably be another bite at that Apple. And it will then be a fight about whether or not the new regulations are substantially similar to the old ones, in which they would still be prohibited under the Congressional Review Act. Although they’re sufficiently different, that they won’t be. So I think that’ll be, you know, litigation and get tied up. So I think the the DOJ front can change, the personnel can change, level of aggression can change. But I think that there’ll be some brakes on that, based on the Congressional Review Act, particularly in the auto finance area. CFPB is a different story. And Brian can talk more about that from his experience there. But CFPB can turn on a dime a little more quickly, and that there is not a big political component. CFPB essentially, the only statutorily authorized political appointee is the director. After the Supreme Court case, this last term, the director can be removed by the president and likely will be removed by the President. And it’s a question of, you know, given the composition of the Senate, how aggressive a director comes in, but even absent that, you have to remember because the agency is new. All the people that work there now are virtually all of them, were hired into an administration that had a very forward looking view on consumer regulation, and really bought into the initial vision of the agency of the Bureau, as authors, essentially by Elizabeth Warren. So those people are all still there. It’s from by Washington terms, they’re great paying jobs, they have civil service protection, you know, people don’t leave the CFPB. You know, often, except for an exceptional opportunity, like working for us prime. But as you know, those people be there, and they can turn very quickly. And they probably would have an idea of how quickly some of those things could go. So I spent the first kind of salvos of a new administration to possibly come out of the CFPB rather than DOJ, I think they’re a little more nimble.

Amanda Harris 22:06
Okay, so the girl the three ways I think most people come into contact with girl you have regulation, right, you have enforcement, you have supervision, those are the touch points by and large, if complaints, too, that feeds into really all these these three areas. The people in place, right now you could write any regular, you want their staff and ready to go, you just tell them what to aim at. And they’ll hit that target. With respect to supervision and enforcement. They’re constantly looking out into the world and trying to determine what problems exist. What What does the newspaper say? What are people saying, where areas we should pay attention to. And so they’re examining as a regular routine part of their job, they do it all the time, people in place running that shop, are running that shop, or they’re sitting with enforcement. They’re beginning investigations, they’re they’re turning over the rocks and looking for ways in which they can bring cases it’s just ongoing part of their job. So nothing changes really other than Do you have someone at the top? Who’s stopping certain things? Are the breaks that are currently I think, in place? Are they going to continue to be applied? Or are they going to be removed? But everything else is really there? I mean, all that’s been added, I think in the last four years, we’ve had a layer of political appointees, who been throttling down a little bit if change the direction exterior, they steered the ship, if you will, in a slightly different deregulatory kind of way. And that could be gone, depending on who the new director is. And even a moderate director, I think, changes course from the last four years. But if you get the choice, if you get something that Richard Cordray model, I think you see the bureau back to its 2014 euro level, I think that’s where we are, yeah, definitely an invite. And maybe you can expand on that a little bit, just you know, how important in kind of steering, how much regulation is done and how like, where the CFPB is going, will really you know, be because you kind of see that change, depending on who leader is right. And you might go for a little bit more aggressive or maybe a little bit more pullback. So just your thoughts like what how important the leader is in driving that and what we could potentially see now that we know where things might be headed. to six really important me as you know, there’s no commission running the Bureau to director, the director sets the Tony’s the general where she is the general on top and directs what happens, the agenda that said I mean, certainly it’s a process of considering what the options are. I can attest to the work that goes into that process where different groups are put together to think about what it is that they do and where the priorities are. What should the focus be of the agency, what our report diverges from it, every year, it talks about what its agenda would be and then it also talks about what it’s done in the past year. It lays out a map for the future a little bit. And so that map how it’s put together, it’s based on what people identify as needs. And then it’s it’s approved by the director. Now, if the director doesn’t like the recommendations back to the drawing board, but also I think you get an idea of what it is that the directors looking for, to me, there’s leaders, there’s an element of leadership here, clearly. And if you want to perform your job in best way, you know how you try and provide the leadership with what it is they need, what you think the consumers need, working in the agency, you’re going to work on this, you’re going to do this and try and accomplish these goals. So yeah, I mean, this is a long winded way of saying, Yes, I think it matters who the director is very much. You know, for something as simple as, for example, there’s been some talk recently about a reorganization in the enforcement division where they would be essentially not demoted exactly, but they’d have a reorg where they wouldn’t be able to direct their their own lives as much. Now, does a new director continue that afford? I wouldn’t think so. Think about the change in fair lending. So when Mick Mulvaney came to the Bureau, one of the first things he did is take fair lending, which was a co equal part of the several supervision, enforcement fair lending, put fair lending, put it in an obscure office under his thumb, really, now, certainly fair lending efforts continue to do bureau supervision, folks picked up supervision, the enforcement folks would work on a fair lending matter. But the leadership and the central core of that group was dispersed. That’s that’s what the leadership means. How’s the place structured? What does it work on? And what does it accomplish? What are the cases that make it to court that have the full weight of the bureau behind it? What cases don’t? What cases get settled? How much are the summons for all these things? This is at the top look at the regulations do? Do you have something that pulls back on the QM rule? Do something that makes it a little softer? for qualified mortgage? Do you have someone trying to work? And around with regard to the CRA and disparate impact? Are you someone who doesn’t really care about it that much? So all these things go right up to the director. And it matters, I think, a tremendous, tremendous deal. Do you have anything to add to bring up sir?

Bob Driscoll 27:31
Only this and then I think there’s no should prioritize prioritizing. This is why sometimes you have to not be in a in a silo, looking only at your own industry, when you kind of look at these things broadly, is a lot of this in Washington, this applies to many cabinet, a regulatory agencies, he has the old saying how if you’re out hiking, and you see a bear, you don’t have to be faster than the barrier to be faster than the slowest person in your group. And that’s kind of there’s a little bit to that, you know, in terms of looking at, like what the priorities are, because no administration can do everything at once is a broadly speaking on a presidential campaign president campaigns on 150 different issues, it makes 150 promises to 150 different constituency groups, and then gets an office and sits around, they got to pick three, yeah, they’re gonna they’re gonna do the first three months and spend their political capital on doing that happens on a mini level on agencies as well. And so it’s going to be, you know, if you want to kind of get a sense of it’s gonna be paying attention early to whoever the director is, and wherever the leadership is, in terms of, you know, what are their top three things because, you know, writing new regulatory regulations is a is an onerous process. Notice and comment period is an onerous process for government to go through. And so the you need some things with some heft behind it. You know, I mean, if our if you are a payday lender right now, I’d be a little more concerned, because I think that, from what I’ve seen, it looks like they might be, you know, back in the back of the crosshairs more than they were in the past four years. And I don’t know, I don’t have a real sense for where auto finance and indirect lending is going to come out. Because there was, frankly, a lot of controversy about the way the Bureau was handling it, even under the last group that, you know, I’m not saying they’d be second guessing from among that crowd. But I’m just saying, I’m not sure how high on the Greatest Hits list, you know, reviving some of those things is going to be in light of, you know, the effect of the CRA and other things that have happened in the interim.

Amanda Harris 29:37
Absolutely. And one thing I kind of wanted to expand a little bit on is some of the, you know, different legislations that we might see, I think you mentioned a little bit on the Congressional Review Act. Maybe we can expand on that a little bit and any other ones that you know, we can talk about how likely that could have some teeth, you know, knowing that this an in house is close Is the our and I know you mentioned by part, bipartisan support is obviously pretty important for any major legislation. But just your thoughts on where that could go and any other type of legislation like that, that we could see gained some traction or not, depending on how things go. What ideally I like I think we disagree, Bob, and you can tell me why it’s wrong in just a second. So I think that it would make sense for the Bureau to be governed by a commission, I think that you would not have the swings that you’ve seen started off with the first five years of its existence, pushing very hard in one direction, and really on a dime, it’s switched on with the complete other way, when it was set up. It was designed, I think, to be an aggressive enforcement agency. But without the director running that show, it stops being that. So from a democratic perspective, they don’t get what they want. And from a republican perspective, they don’t want this aggressive enforcement agency, it’s not business friendly. So if you put a commission on top, you might get a steady, more predictable kind of Bureau. And I think that’s the kind of thing that maybe you get buy in on both sides to kind of bipartisan legislation that could pass in this environment. I think that we have a difference of opinion there. What do you think?

Bob Driscoll 31:14
I actually, I don’t think we do have a difference of opinion. I actually think that given you know, the way Bureau was set up, it had, you know, purported independent director, the court has found it, that was a violation of separation of powers and director has to report to the President, therefore, can be fired by the President. But you know, I think that makes the CFPB. More like what we refer to in town, as you know, the Kwazii independent agencies, like the SEC, and some other places, most, most of those do function under commission structure. Where there is, you know, a commission, a chair and a commission, there’s appointed that serves over time, and does kind of smooth out some of the some of the rough edges. I do think that over time, the CFPB, will begin to look more like a traditional cabinet agency. Because once you’ve been around long enough, you a few generations of presidents, you end up just by virtue of people retiring and leaving, you end up with layers of people staffed over various generations. And so you have kind of people have been appointed by folks with all different politics, they’re all kind of working into becomes an institutional cohesion that goes kind of beyond the politics of the day. And I think, obviously, the the leadership matters, and that priorities are set by political leadership. So where our government works, but I think it also is, from a governance standpoint, it is better to have an agency that has kind of its own identity, independent of that, and then can be guarded and prioritized by the political leadership. So I think a commission structure would make sense where I would disagree with Brian, I just don’t think it’s likely with a with a Republican Senate. You know, just because more infrastructure to government as kind of good as it might be from a government perspective. I don’t view that as kind of on mitch mcconnell’s dance card. So, you know, possibly, I actually think, you know, I would tell my Republican friends actually, don’t think be the worst thing in the world to have a commission overseeing the CFPB. And I think long term, it’s something that should consider, I just am, I would be pessimistic that that view would prevail. But that’s just an opinion. But I think that’s something that will be discussed. With respect to the CRA you mentioned earlier, that’s not necessarily new legislation. The CRA is legislation that’s been passed a long time ago, actually, it was essentially laid dormant. Republicans resurrected it. For a period of time during the Obama administration, it’s been used a couple of times, I think, during the Trump administration, and with Congressional Review Act does, you know, broadly indulge me just for a moment of a little bit of law is that, you know, the way legislation is passed and we legislature is analyzed, is that the Constitution says up the broad structure of the government as to how laws are passed, statutes are passed, you know, both houses of Congress. I’m Bill, I’m only a bill that we all learned growing up Schoolhouse Rock signed by the President. And then regulations are drafted by, you know, the agencies themselves by essentially, career bureaucrats. And I think for a long time, it’s been a lot of tension of the people that draft these regulations as soon as not politically responsive, because they’ve got civil service protection. They’re drafting relations has been real fight as to how much discretion people who are drafting regulations should have. Congress has had a way of avoiding political accountability by passing big great laws that say things like you know, we’re going to pass a health care law, and it’s going to provide all necessary health care, and the Secretary of HHS shall define What necessary health care is, you know, within the next year. So they punt that whole thing over to HHS and have them do it. So the CRA is ability of Congress to say, wait a minute, if those regulations, you draft go outside the intent of what we meant passing this law, we, through joint resolution of both houses of Congress can essentially force the repeal of that regulation or anything substantially similar to it. I think it’s not a terrible use of Congress’s power, I wish Congress would take more responsibility for what it does. But again, with a congress and equipoise, and ensuring the house is going to be just as close as the Senate, we’re talking joint resolution here. It will be interesting to see if regulation gets too aggressive in an industry really wanted to lobby, you know, there is always the possibility that could be a Congressional Review Act resolution, repealing, you know, adverse regulatory actions, that that an industry had, you know, would obviously not be a first order defense. But I mean, you look at what happened with the indirect auto lending, that kind of thing could happen again, and it’s important to pay attention to if an agency kind of went rogue, so to speak, and it did something much more aggressive, which is always a temptation, when there’s going to be a stymie on the congressional level, that an agency wants to be very aggressive drafting regs because they can’t get through statute. So I think that that’s something to pay attention to is will the Congressional Review Act continue to be something that Congress uses to kind of claw back some of its own authority from the executive branch and from the regulatory state, so to speak?

Amanda Harris 36:38
And kind of talking about, you know, what, what we could see, and you mentioned, you know, disparate impact earlier. You know, just Are there other examples where, you know, the industry could see more regulation, or things that at least will be talked about, or looked at, that lenders should be preparing for? broadly? Yeah. I mean, yes, there’s lots with respect to this audience. So the one thing that I do think about that, we talked a little bit about this before, it was disparate impact. I’ve just been active in trying to change the parameters of how the FHA works. And then we move at was at the bureau after the disparate impact guidance was CRA by Congress. And the first thing she said is we’re going to continue enforcing disparate treatment use specific to use disparate treatment to Nazi disparate impact. And so he’s going to have to evaluate disparate impact and how it works, given us some cases recent them holding just back to the FHA, which relied on the structure of that lot COA, which gives us disparate impact in the auto world is different. It’s not structured in the same way. So I do wonder if you get a fully Democratic Congress, where you both houses, and both sides, I should say, of Congress and Senate House, would they tinker with the law giving birth to reg B, and disparate impact and how the drone forces? Would they? Would they tinker with that? Would they expand to make more evident or clear that it intends or does not intend for that law to cover disparate impact relative disparate treatment? Now, if it’s close at all, I mean, could you if you don’t have both sides, you’re not going to get this considered. But it’s something that’s come up repeatedly over the past four years, that the only way to resolve this truly is through Congress? And will they or won’t they? If they do, it’s going to be huge? If they don’t, then it’s business as usual, which is, everyone kind of goes like this, because you have rugby, but the guidance is gone. So rugby still exists, and it says the effects test is valid. And the Bureau, I think, would be inclined to one pursue that. But their hands are somewhat tight. Now, you talked earlier about creativity, you get regulations and other ways that clarify rabies affects test that doesn’t directly speak to auto, that mean, then you get into that line of, Okay, are we gonna litigate this for the rest of our lives? Because is it or is it not the same as the guidance that was previously locked out?

Bob Driscoll 39:16
And I think just to add to that, I think that, you know, the people think about these things full time. So a lot of consumer protection people civil rights people, kind of industry and government dorks like like me, you know, that this is a multi year multi generational almost conversation that goes back and forth. And so I think what people need to remember as well, you know, the disparate impact stuff got CRA for indirect auto. The government was very clever when they were bringing those cases. If we want to harken back to those days when I was wrangling with the CFPB more about those kinds of things and with DOJ about disparate impact. They would never say we were relying on a pure disparate impact theory. They would always bring it as a hybrid disparate treatment disparate impact theory, because everybody agrees that these statues prohibit intentional discrimination. The question was, what happens when there is a disparity that cannot be attributed to intentional discrimination, where, you know, they just put impact based on an algorithm or something else that ends up having a negative effect on a protected class. And so, particularly in the indirect auto area, it was never clear what the government’s theory was. And they that was intentional, because they always knew there was a chance of some court, the Supreme Court or someone else taking out the the central The, the disparate impact effects test kind of portion of it. So that always left part is being intentional discrimination. And it’s a non frivolous argument, frankly. I mean, even though it sounds like disparate impact, when you’re aggregating certain things, if you do end up with somehow you have proof that, say, African Americans and Hispanics, ended up with higher markups on their loans out of out of a particular dealership or group of dealerships, then why customers did? Well, you know, in a lot of ways that looks a lot like a disparate treatment case. You know, and I’m familiar with all the defenses and all the complaints that Well, you can’t collect the data, and how can you be sure, and I get all the flaws of argue them all, work with experts on slicing and dicing the numbers different ways. But I think that, you know, I wouldn’t have a a complete feeling of relief, that that the CRA impact on the indirect auto means that you know, it’s going to be smooth sailing, regardless what happens at the CFPB and the DOJ, because I think, again, there are people that have been thinking about, I’m gonna think about now in particular, some people I know, DOJ, their career people, they’re, they’re hired during, you know, the first Bush administration, and have been thinking about disparate impact theories, and how these things intersect for that long, and so they will, they’ll have plug and play options, ready for their leadership, if they want to get more aggressive in this area. And you know, the terms of the fight may change a little bit. But I think it’s still every possibility that some of these issues will continue to be issues, notwithstanding what Congress probably thought it did when they see our ad some of this stuff

Amanda Harris 42:27
to change gears just a little bit and talking about what other regulation or legislation could come down the pike. So right now, we’re clearly in the middle of this COVID pandemic. If you think back 10 years ago, we were in the middle of a mortgage crisis. And as a result of that, you had the launch of the Bureau and you had, of course, more servicing rules that came to try and fix the issues that the bureau identified and others identified that caused or partially caused the mortgage crisis. So now, we I think in the in the audio world, I think everyone’s probably thinking about this. Well, how servicing going to go in the near future, and even the future, as put down are a little bit farther than near? What kind of attention will be paid from abroad? I mean, at first, I think it’ll be through supervision, and perhaps some enforcement, but as a result of that, it may be that they determined that no, I think we need a new role here. And I’m just speculating it, it will be based on whether or not they find that they have the tools, they need to address problems, if they find them that arise and servicing. But they don’t think they have the tools. If they think things need to be more black and white or clear, then they could write a rule in that space. Additionally, I think that you could also see, this is not COVID related. This is just generally with the new administration, I think the efforts of the bureau have not been to expand its jurisdiction. And that was something part of the original Bureau, they have this larger participant rulemaking authority to increase their their supervision program to expand into new markets. We saw that in the auto world. I think it was definitely in the last five years or so ago. So now what would we have? Well, I think on the agenda previously, before the changes in ministration, was lenders Generally, people who are not banks who make loans are not covered, currently not payday lenders. But that brings in the role of FinTech, who also play a role, I think, in the auto industry as well. But it’s a whole other market that could be regulated by the Bureau in the future that tangentially touches here. I mean, I think there’s some overlap, because I think those things can be considered service providers to auto lenders, but they have some jurisdiction, but it could make it more clear. So those are things that could be coming down.

Bob Driscoll 44:51
I would also pay attention. And this is in terms of thematically how government works. You know, looking back to the mortgage Prices I look back sometimes to 911 is that after 911, you wouldn’t believe in this town. Everything that was tied to national security. Every interest group in town and every bureaucracy in town recognized if they could have a national security angle, they’re more likely to get funding, they’re more likely to get support. There was kind of a train momentum building for that kind of thing. And I suspect to pay attention here with the COVID crisis. You know, I would suspect that more aggressive regulation, one way I would do it, if I were incoming for the current administration, and had their views is see what kind of statutory authority I could get to say, when the Secretary declares a certain type of emergency, certain kinds of restrictions on collection activity, or foreclosure activity or repossession activity will go into effect. And that people put this in the context of COVID. Have we had this pandemic, we had an economic crisis, we wanted to protect people from being evicted from their homes or having their cars repossessed. And so you will there be, and obviously, is a if you’re more of a limited government type, you might say, Well, wait a minute, I’m not sure I want the government to be able to just declare an emergency and change the rules. But looking back some some that might be proposed as the type of legislative fix to say, you know, that’s a lesson learned from COVID. is do we have an ability, because I think things happened with regulations, but they were never really tested. I don’t think industry wanted to test them in terms of some of the restrictions on foreclosures and other things that went on. And so I think there might be a regulatory program discussed that says, Okay, what do we want to do in the event of the next big crisis, where essentially, we could have a commission or an individual flip a switch and institute a bunch of protections, similar to what we had during the COVID times. And so that’s something I pay attention to as well as potential area of activity

Amanda Harris 47:13
in the consumer reporting, I think is an area where I’d add to that list as well. I think that would make some sense, the cares act did some of that. But could you see more of it down the road? Potentially. So? Well, I think we you know, that a great overview today. We really appreciate both you coming and sharing your insights on what what this could look like, you know, some really great insights on things I think that lenders should be thinking about. So we appreciate it. Thank you for having us. Yes, absolutely. Well, that concludes today’s webinar. Please check back to auto finance excellence and auto finance news for the leading industry insights and thank you again for joining us.

47:57
Thank you.