Indirect lenders will need to act quickly to remove arbitration clauses from contracts throughout their dealer networks in the wake of the Consumer Financial Protection Bureau’s arbitration rule, David Keene, director of compliance and licensing at Sierra Auto Finance LLC, told Auto Finance News.
“It’s going to be hard, especially on indirect lenders, because now we have to go back to dealerships, vendors, etc., and change contracts, change policy to say we can’t take arbitration contracts,” Keene said. “It’s going to put the onus on us to do quite a lot in a short amount of time.”
The new rule, which is set to take effect in Sept. 19, instructs lenders to remove arbitration clauses from loan contracts, which will allow borrowers to form class action lawsuits to resolve legal issues rather than solving the matter out of court.
While many banking advocate groups have focused on how this will be costly for lenders, Keene is more concerned about the pace of implementation. “I don’t honestly see the class action piece as a big threat — it’s the layers of scrutiny that have to go into it,” he said. “We’ll have to notify 3,000 dealers that we can no longer take arbitration contracts. Although we don’t furnish contracts, we’ll have to direct dealers back to their vendors.”
There’s still a chance Congress could act to strike down the CFPB’s rule, but Keene isn’t optimistic that solution will come through.
“In today’s political climate I doubt there will be any action from Congress on this,” he said. “I think there are bigger issues in front of them that will get their attention.”
