Regulatory enforcement “is not just a subprime credit issue,” in the wake of news that BMW Financial Services is cooperating with the Department of Justice to provide information about its servicemember compliance policy, said Braden Perry, partner at Kennyhertz Perry LLC.
“When you think of these types of [enforcement] actions, ordinarily they are looking at the subprime industry but … it affects prime, as well,” Perry told AFN. “Any dealer or lender out there can be subject to the same kinds of prohibitions.”
Subprime lenders Santander Consumer USA Inc. and Wells Fargo Dealer Services Inc. each faced investigations and fines for illegally repossessing the vehicles of servicemembers, in 2015 and 2016, respectively.
However, BMWFS is notable because its portfolio skews prime. The captive is marketing a AAA-rated $1 billion bond to investors, but said it doesn’t know how many of the bundled loans could be affected by the compliance issue, according to a published report.
Once the bond is sold, the company loses some of its control over the compliance of the securitized loans. So, if the bond contains loans that violate the Servicemembers Civil Relief Act, some of the burden is lifted from the company, Perry explained. The transaction is expected to close March 22.
“It’s odd — there was a lot of talk prior to the inauguration about pulling back on a number of different regulations including Dodd Frank and some other consumer protection rules and regulations, but that hasn’t happened yet,” he said. “These investigations, including the BMW investigation, were initiated prior to the Trump administration and so it’s effectively a continuation of the prior administration and prior priorities.”
