On July 10, the Consumer Financial Protection Bureau issued a rule banning companies from denying arbitration to groups of people. For auto retail dealers and lenders, this change is just one more turn of the screw clamping down on the ability to do business.
The new ruling stipulates that auto dealers and their lending partners will still be able to include arbitration clauses in their contracts. But those clauses may not be used to prevent consumers from joining a class-action lawsuit. The rule specifies the language that must be used in the contract. Companies are also required to submit detailed information to the CFPB about claims and awards made in arbitration. That data eventually will be made public, with consumer names and identifying data removed. It’s no wonder dealers and lenders are feeling like Big Brother is looking over their shoulders.
While the original purpose of the CFPB was to “root out” unfair, deceptive, or abusive acts or practices, supervise lenders, and enforce laws, it cannot be denied that the bureau has had its eye on the retail automotive lending market. While there will always be a bad egg (like in any industry), the majority of auto dealers and lenders are trying to help the consumer. Unfortunately, this additional ruling complicates those efforts.
This rule will force small businesses to bear additional costs in defending class-action litigation, particularly meritless suits. Those costs will ultimately be borne by consumers, and in the case of those who are credit-challenged, it could prove to be too much.
The good news is that key industry associations are working with members of Congress to oppose the ruling. As Congress considers CFPB reform, both the lending and retail automotive industries will be urging lawmakers to overturn this anti-consumer rule. In the meantime, dealers and lenders alike are encouraged to review their contract language, as well as any other materials which discuss the consumer’s rights to contract arbitration.
With more than 40 years of experience in retail automotive, EFG Companies knows how to position your institution as a strategic partner within the dealership space. Contact us today to put our in-depth knowledge of dealership operations to work to make you a preferred lender for all your dealer clients and beyond.
