In January, I closed my column on 2022 compliance predictions with a hope for more predictability this year. Are we laughing yet?
I broke down my predictions into three categories: state regulations and regulatory bodies, the Chopra-era CFPB, and congressional legislation. Let’s look back at movement in those three areas.
Regulation at the state level
The regulatory bullseye at the state level this year centered on data privacy. No surprise there. Not only have the three states we knew about at the beginning of the year — California, Colorado, and Virginia — enacted comprehensive consumer cybersecurity and data protection laws effective in early 2023, but two more have joined: Connecticut and Utah.
Connecticut’s Act Concerning Personal Data Privacy and Online Monitoring, enacted in May, becomes effective July 1, 2023, while Utah’s Consumer Privacy Act, enacted in March, becomes effective December 31, 2023. It’s safe to say more states will follow this trend, so any lender who hasn’t begun updating cybersecurity training as well as compliance policies and procedures should strongly consider making it a New Year’s resolution.
On the topic of California as the bellwether for state regulation, as of January 1, 2023, legislation takes effect to regulate guaranteed asset protection (GAP) waivers sold in connection with conditional sales contracts (CSC) in the state. The bill includes requirements on both the origination and servicing/ termination side of two-party GAP waivers but does not apply to GAP insurance. This may represent the next frontier for aggressive state legislative action: treatment of refunds and cancellations of voluntary protection products.
CFPB under Chopra
In January, I encouraged lenders to expect increased investigation and enforcement this year. Sure enough, we’ve seen an expansion of enforcement and regulation by supervision over the past 12 months. The Bureau has been very active in publishing blog posts, articles, and advisory opinions to reflect their supervisory positions as opposed to through regulation.
The CFPB has reiterated its position on proper repossession practices and policies — almost verbatim based on the related 2018 guidance — placing a greater burden on finance companies to ensure proper vendor management and robust internal systems. In addition, thorough documentation of consumer agreements regarding payment plans and living up to what was initially agreed upon is key.
There has also been emphasis by the Bureau on pay-to-pay programs in debt collection. While on its face, this doesn’t directly implicate creditors, lenders should be mindful of the CFPB’s broad use of its UDAAP authority when reviewing its use of payment fee programs.
Lastly on the topic of the CFPB, who could have predicted that the Bureau’s very existence would be called into question this year? In October’s Community Financial Services Association v. CFPB, the Fifth Circuit Court of Appeals in New Orleans ruled the CFPB’s self-funding mechanism unconstitutional. The CFPB has asked the Supreme Court for an expedited review, so we can hope for resolution in the coming year.
And on the broader federal regulatory front, we saw the Federal Trade Commission (FTC) take a particular interest in auto dealer practices in connection with the sale and financing of both vehicles and voluntary protection products.
We anticipated activity on this front, but Capitol Hill has been relatively quiet on data protection and privacy this year, with aforementioned states picking up much of the legislative and regulatory slack. Given the recent change in Republican control in the U.S. House of Representatives, it’s unlikely that there will be much movement going forward.
With the lingering effects of COVID-19 on the nation’s health and economy, including supply chain and inventory issues that triggered runaway inflation and, in response, dramatic interest rate hikes by the Federal Reserve, 2022 was certainly an odd year. With these factors having the potential to limit access to credit for many consumers, we’ve seen financing volumes drop. Here’s hoping 2023 will bring — if not predictability, as I’d hoped this year — some semblance of stability to the auto finance market.
Mark Edelman is the chair of national consumer financial services compliance practice group at McGlinchey.
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