New proposals from the governors of California and New York on consumer protection laws should spur auto lenders to take a second look at their servicing practices, Stefanie Jackman, a partner at Ballard Spahr, told Auto Finance News.
“It’s not at all surprising that California or New York would do this — they’ve been extremely vocal about consumer protections for years,” Jackman said. “These are not states that have a light touch on compliance issues. They could have very onerous reporting and licensing requirements [if the new legislation is passed].”
Specifically, California Gov. Gavin Newsom attached consumer protection provisions to his 2020-2021 budget proposal that would expand the reach of the Department of Business Oversight (DBO) and change its name to the Department of Financial Protection and Innovation. The new law would allow the regulator to take enforcement action against unlicensed financial service providers not currently under the DBO’s oversight, including debt collectors, credit reporting agencies and fintech companies. The new regulations would also expand the state’s reach when it comes to policing unfair, deceptive or abusive lending activities, increase the regulator’s annual budget to $19.3 million from $10.2 million, and double its staff to 90 by 2022.
Lenders could be held accountable for the actions of their partners, whether it be third-party servicers or their fintech partners.
“The auto industry also needs to be thinking beyond if they could be subject to any of these licensing laws, but also, could their partners?” Jackman said.
To be fair, most auto lenders service paper they originate, Jackman noted, but “they certainly might need to take a fresh look at their vendor licensing and, indeed, any of their outside servicing partners now registered as a collection agency for services they provide.”
Similarly, New York Gov. Andrew Cuomo is seeking to expand the reach of the Department of Financial Services (DFS) by eliminating state exemptions, putting all consumer products or services under the umbrella of the Consumer Financial Protection Bureau’s legal enforcement authority. The new legislation would also give the DFS the authority to license and regulate debt collectors and double the maximum fine for violations of the state’s “Do Not Call” law to $22,000 per call.
“In California and New York, the AGs are already empowered through UDAAP under Dodd Frank to take [enforcement] action, but [new provisions would allow them to] hold the principal responsible for inadequate oversight [of their partners],” Jackman said.
“This just gives them one more channel through which to do that, because they’re now putting together a regime of licensing that you, as the principal, can go and say, ‘Maybe my fintech partner needs to have a license because they do collections on these loans for me, and even though they start servicing from origination — or right after origination — it looks like they’re now considered a debt collector under the [states’] licensing laws,’” she explained.
AFN first reported rumblings of expanded consumer protections in California in March 2019, when state Assemblywoman Monique Limon, who chairs the Assembly Banking and Finance Committee, hosted former CFPB Director Richard Cordray to discuss the creation of a new consumer protection agency. At the time, compliance experts believed the process could take years, if it received enough support.
Now, increased attention from the California and New York governors could speed up that process, although no definitive timeline has been provided by either office. Limon’s office issued a statement offering support for Gov. Newman’s proposal as it moves through the state Legislature. And with 2020 being an election year, there is additional motivation for the governors to pass the legislation, Jackman mused.
“I would think that both [governors] would be very motivated to do it this year, given that it’s an election year,” she said. “There’s a lot of political capital in an environment where you have two blue states that I think could make hay out of [consumer protections] for their state and federal candidates, and possibly the broader party they identify with,” she added, despite the fact that Cuomo and Newsom are not up for reelection this year.
For more content like this, join us at the upcoming Auto Finance Accelerate event, March 9-11 at the Omni San Diego. Combining three crucial topics in auto lending and leasing, Auto Finance Accelerate dives into the strategies and knowledge needed to enhance your company’s auto finance sales, marketing, and innovation. Register before Friday, Jan. 31 to save with early registration rates. Visit www.AutoFinanceAccelerate.com to learn more.
