MANAGING COMPLIANCE WITH STATE REGULATIONS
Technology systems are one of the better ways for auto lenders to stay ahead of updates to state regulations. “It all starts with a best practices compliance management system and all of the different interdependent functions of that system,” Lavin said.
Consumer Portfolio Services leverages a software program that provides tables of all 50 state and outlines every statute that regulates consumer finance laws. “It alerts us to changes on things from the Fair Debt Collection Practices Act to the Fair Credit Reporting Act, to things like GAP,” Lavin said. “In minutes, we can pull up any statute from any state and read up on what’s going on.”
Additionally, the lender subscribes to regulatory alerts. “If anything changes in any state in terms of regulations, we get alerted to that immediately via email, if it’s material,” he said. “We get a monthly newsletter alert that notifies of state changes, that way we know of it and can make changes right away.”
One of the biggest hurdles for auto finance is finding the balance between state and federal law, Redding said. “California is a great example,” he said. “People will comply, but how do you comply with it in the context of other rules and regulations that you have to comply with? That’s the challenge for auto finance.”
However, if a lender is caught between state and federal regulations, it’s best to pick the regulation that most benefits the consumer, Enyart said. “If you have competing interest between a state and federal statute, pick the one that is most advantageous to the consumer and most compliant to the consumer,” he said.
Auto lenders have to keep in mind that the very complicated web of compliance and the increasing consumer protections have certain unintended repercussions, Enyart said. “The consequence is that the cost of borrowing for everyone goes up as a result,” he said. “Lenders need to generate an acceptable return on their investment and capital. If you need to hire three compliance people — that are not inexpensive — you need to put all these compliance systems in place, there is an increased cost.”
Lenders have to make sure their top-line revenue is sufficient to cover those costs and still generate a return, he said. Heightened legislation often translates to higher compliance costs for lenders, he added.
In spite of the hurdles lenders encounter as a result of increased regulatory oversight by the states, a pullback from attorneys general is unlikely anytime soon, said Brian Frontino, a partner at Stroock & Stroock & Lavan LLP. Under former CFPB Director Richard Cordray, state attorneys general were feeling “marginalized” as the bureau was taking the lead and telling the states to stand down, Frontino said.
“Today, state attorney generals are excited that their place has been rekindled,” he said. “They were quick to reassert their authority and pick up where they left off before Mulvaney.”
No matter the source of the regulations, auto lenders are best to keep compliance top of mind. Any thought that deregulation on a federal level is a time to relax is wrong, said Lavin of CPS.
“Compliance is never going to go away in this business, it’s a 24/7 activity to allow yourself to sleep at night, and it takes resources from the top to get it right,” Lavin said. “The minute you relax and take your eye off the ball is when you are going to get hit.”