State and federal compliance is always top of mind for any auto lender. In this session, panelists will discuss how to stay ahead of changing state regulatory risks, and the strategies lenders can adopt for stronger federal regulatory compliance. [toggle title="TRANSCRIPT"] <div class="transcript-scroll-box"> 01:07 Good after 01:08 noon, my name is Molly Stewart and I'm the Chief Operating Officer at Royal media and auto finance news. And we're very happy to welcome you to the second in this special three part auto finance risk summit webinar series. We are very pleased to provide you with complimentary access to this series of crucial industry sessions presented through the generous support of defy solutions and live box our series sponsors. Today's session is sponsored by defy solutions. And we will pause now for a brief message from them to start the session. 02:01 stain is 02:03 always top of mind for any auto lender. In this session our panelists, Michael Ben Wah and Mark element will discuss how to stay ahead of changing state regulatory risks and the strategies lenders can adopt for stronger federal regulatory compliance. We expect this would be an informative and interactive session and encourage your active participation by submitting questions through the session for our panelists. We also encourage you to continue to connect with us and this community online at auto finance news dotnet. And through our social media channels as we continue to work through the uncertainty of the coronavirus pandemic. We also will be hosting the 20th annual auto finance summit as a virtual event this October and we hope you'll join us for more important industry conversations and networking to help us all stay connected through this crisis. Now I'd like to introduce my colleague Joey is the lotto deputy editor of auto finance news who will moderate this session. Joey is around 03:00 writer and editor based in New York, his fiction and nonfiction have appeared in a variety of print and online publications. Before reporting on auto finance, he covered the Mortgage and Housing industry. He holds a master's in fine arts and writing from Spalding University, and a Bachelor of Arts and English from DePaul University. Joey. 03:22 Hello, everyone, and thank you for joining us. Quick reminder, before we get started, if you'd like to submit a question, you can do so in the upper right right corner of the browser in the chat box. Please note that all questions will be privately sent to the moderators and the panelists. Now I'd like to introduce our panelists. Michael Ben Wah is chairman of Hudson cook, and has been with the firm since 2006. he advises banks, sales finance companies, auto dealers, leasing companies, mortgage lenders and other creditors and technology providers on a wide range of consumer financial services law. 04:00 provides federal legislative and regulatory advice and support to financial services trade associations. His practice includes consumer credit, electronic commerce, privacy, telemarketing, personal property finance and leasing, as well as creditor based collection practices. Our second panelist is Mark Adelman member and McGlinchey Mark has been with the firm since 2001 and has provided guidance to banks, finance companies and online lenders throughout the United States on regulatory compliance matters in the arena of consumer financial services for more than 25 years. He counsels clients on a full range of issues including consumer loan documentation, ecommerce, underwriting, licensing, or underwriting and licensing state and federal regulatory examinations and investigations, acquisitions and divestitures warehouse and other commercial financing insurance and structured finance. Gentlemen, welcome. 05:05 I think we might be muted. 05:07 Can you hear me now? There we go. Good morning or afternoon, I guess it was 05:14 great. Well, to get started, um, 05:18 so to prepare for the session, we asked attendees some rank regulatory compliance issues in order of preference as session discussion topics, which is just another way to say, you know, which issues are bothering you the most. The answer was loss mitigation and repossession. So to start us off, I guess surprised. 05:40 Not in the current circumstances, I think that 05:45 with this pandemic with the significant job loss in the country, 05:51 I think that loss mitigation and I think there have been some state moratoriums on a possession. I think 06:00 Many finance companies and banks are worried about their collateral. 06:05 Yeah, and I think if you tie into that the exploration of the supplemental unemployment compensation program from last week, where to Michael's point, number of people who are unemployed 06:21 have lost a source of additional revenue. So you put it all together, and I can understand why there's anxiety about the credit worthiness of the customer and next steps, right, and these are all things we're gonna we're gonna touch on throughout the panel. To start off, you know, high level, what are the risks around repossessions and account referrals? 06:51 So, I'll start off in case you haven't figured out in the audience, Michael and I are going to kind of tag team with each other. So if you're 07:00 Looking for a five five hour five minutes soliloquy on topics you're not going to get it. So there's going to be a lot of give and take between Michael and me. So what was your question joint numbers? So 07:13 repossession, you know, is 07:18 it's, it is a creature of state law and the the beauty and the bane of the existence that we have is that it means that there are, as I'm sure most of our audience know, multiple variations on the theme and to restate an admonition that I've given to clients and continue to give a client's you can't use the same repo notice in all 50 states and what that means is, processes and procedures are different. 07:47 And all the different attributes of repossession, including pre repossession, notices post repossession REITs, to cure limitations on the collectability of certain expenses. 08:00 timing for when these need to happen, the manner in which the vehicle needs to be disposed public sale versus private sale To whom does the notice need to go? It all varies. And when you throw on to that some of the other issues that we're going to be talking about which, you know, obviously, I would say that given the moratoria that existed on both collection activities, and repossessions, you would expect that from a regulatory investigation and examination perspective, how creditors responded to that and how their repossession processes were put in place. In the context of, you know, all of these items, including deferrals, which we'll be talking about later, are all going to be very high on the radar of the appropriate regulators. And obviously from a very high level. 08:57 I think Michael will get to later 09:00 As well as at the federal level. True. And to add, I agree with everything Mark said, to add to that. One of the other 09:12 areas of concern around 09:15 repossession is most everybody uses forwarders, or aggregators, you know, they use third parties, who then arrange for someone to go and pick up a car. And I think as we've seen in recent 09:34 examination scenarios and recent enforcement scenarios, 09:40 those are third party agents for the creditor, and the creditor is responsible for the bad things that they do. So you have to, you know, have some sort of 09:53 oversight and management of your third party providers via some sort of country. 10:00 Actual arrangement or something else. One of the other challenges that I think we have right now with deferrals is 10:09 it is an ongoing concern. 10:15 In, in finance, generally, which is it's human beings like us, and hopefully smarter than mark and me who are actually inputting information into loan origination systems and servicing systems, but it is garbage in garbage out. So, you know, to the extent that you make an error in flagging a, an account as a deferral account, 10:42 you know, you're going to start sending your, your automated system is going to start sending late notices and, and start putting people into default, if you haven't flagged accounts properly. So that's something to be concerned about. 11:00 And hopefully, you know, there's some controls in place within the institutions to make sure that that if you are making deferrals, 11:10 that those are being appropriately recorded. There. I will not name names about a bank, but there is one in the mortgage area that I understand 11:23 what made deferrals, 11:27 mortgage payments, some people sent in payments anyway and the bank failed to record the payments. And that is a huge error on the part of the bank 11:39 because it has a significant financial impact on on the individual who's making the loan payment in terms of interest, accrual, and 11:51 maturity of the loan. So 11:55 it really comes down to the human element, I think and you have to make sure you have been trained 12:00 in place, good policies and procedures, good training in place, and good quality control to make sure that, you know, what we humans are doing is consistent with what the policies and procedures are. 12:15 I echo that entirely. 12:18 One other aspect of the deferral, the non human piece of it is to make sure that your system as Michael said, the issue about accepting payments, but more importantly, you know, these deferrals were they're going they're typically were 60 to 90 days, which means in addition to other things that are running off, the deferral periods are running off. And so you need to be sure that your system realizes that when statements go out, for a deferred account, that it doesn't reflect past amounts due for periods that were during the deferral. Now, you know, I think the reason why 13:00 This is important is I recognize that it's typical to from time to time as a customer account strategy to 13:11 grant, you know, a one month or extended payment or things like that. But the scale with which this happened from a systemic perspective is very different from having a situation where maybe three to 5% of your accounts at any one time may have a 30 day or a 15 day extension, if you will, now having a 60 to 90 day period, where now all of a sudden you start back up as if nothing happened. The system needs to reflect the fact that the next scheduled payment there they were current coming into it the periods of deferral while you may have been accruing finance charge or interest depending on whether it was a loan or a retail contract. 13:55 The payments are still there or not. There are no arrearages at least 14:00 To the extent that was not, they weren't in a rear at the time that the deferral was requested. So you need to be sure that the system isn't behind the scenes setting a car up for repossession because all of a sudden the kind of the grace 14:17 period has expired. And now the next annual payment is due August 25. But while that's going on, the system is wondering where the main May, June and July payments are, and has sent the car out for repossession, which, you know, again, is a function of making sure the left hand and the right hand are talking to each other. The other aspect of Michael talked about his training, I'm sure there going to be a lot of phone calls from customers that are going to call and try to understand what's happening now that the deferral period is over. And 14:51 it's very important to make sure that the human element, as Michael said, knows what the right story is to tell the customer when they ask 15:00 Questions about what am I supposed to do, particularly if there's something that shows up incorrectly on the statement, or if they go to the website and they see, you know, past due payments or things. And one final thing to think about. 15:15 And this came up in the sand antair consent order a couple of years ago, you need to tell consumers, what happens at the end of the deferral period, and how are payments going to be applied at the end of the deferral period. 15:35 I think that's what Santander got in trouble for us that they didn't communicate particularly well, or that was the allegation that they didn't communicate particularly well with consumers about how the payments were going to be and I think it's up to each and institution to decide how payments are going to be allocated. I have my own thoughts about that. But what 15:55 I understand in the consent order Santander debt had was 16:00 That when payments started up again, they were applied first to the accrued interest that had accrued over the period of the deferral. So the first payment or two could have been solely interest payments, you're 16:19 principal is going to continue to accrue interest. 16:24 And that was not apparently adequately communicated. The other issue is what does it do to the end of the term of the transaction. Because if interest continues to accrue, that doesn't necessarily mean that if you defer three payments that you just add three payments at the end. If interest is continuing to occur in that period, it's very likely that there's going to be a fourth payment or a fifth payment to pick up that additional accrual. So you have to be clear with the consumer about what 16:55 you're going to do and how you're going to do it. I know some 17:00 banks or some finance companies like to pay all of the outstanding interest first. Others will take that accrued interest that occurred during the deferral period and put it in a non interest occurring bucket at the end of the transaction. And then their payments will pick up after the deferral with principal and interest payments like they were and then when you get to the end, you pay off the the accrued interest that itself was not accruing additional interest. Again, 17:33 financial institutions are going to do it differently. 17:38 in a way that's reflective of what their their regulators and the law expects, but that's something that I think you need to be clear with consumers about it's not a one for one trade. It's not three months off, and we just had three months at the end. 17:53 Well, and of course, we're not going to let you always speak in case you haven't figured this out. 17:58 The one last point on that 18:00 None of this should be news to you because it should have been explained to the customer when you gave them the deferral. You know, that's that's the other thing that needs to be, you know, you most likely if you followed either Michael or Meyer, both of our advice that hopefully we gave to you at the time you came to us and said, Hey, what are we supposed to do? Your documentation and discussion with the customer. 90 days ago, when they asked for the deferral should have evidenced and told the customer what was going to happen. So again, you need to be sure that whatever you're telling the customer, the worst thing you could do is tell the customer something different than when you told them when they asked for the deferral and you granted it in you explained it something different or something incomplete. Yeah, that's that's and I think it's an adequate these days to simply say, interest will continue to accrue during the deferral period. 18:55 I think we need to explain with more particularly what that means. 19:00 means for the customer in that particular transaction. 19:05 Right. Great. Back to you. Awesome. My turn. It's okay. Nobody's here to hear me speak. They're here to hear you speak. But Michael, I'm glad you mentioned that mortgage lender that got into a little bit of trouble because I think, you know, the auto finance industry can learn a lot from you know, other financial services segments fallings for lack of a better word. So, my question is, you know, looking at the auto finance industry, what degree are lenders ready to deal with the post account deferral dynamics? 19:36 Well, hopefully they're ready for it because deferrals aren't something new. I, you know, from a systems perspective, from an operational perspective, I would be surprised 19:49 that a finance company didn't understand how to manage that that process. I think they were only talking about degree of volume here and because there's 20:00 Probably a lot more deferrals going on than have been in the past. But remember that deferrals are exceptions. And so how the institution manages exceptions is very important. And it requires controls both on the front end and the back end, to ensure that, that that's being taken care of 20:25 appropriately. And I do think it comes down to disclosure and in a lot of respect, that the CFPB certainly is of the view that consumers are entitled to understand. All the transaction works and they're entitled to transparency, in terms of, you know, what are they going to owe at the end of all of this, and you need to I think you need to be in a position to be able to explain that adequately to the consumer. I'm sure Mark has something to add to that. 21:01 Well, I think just building on, you know, Michael, use the word exceptions. And you know, the key thing, obviously, from the CFPB perspective, is your compliance management system, your CMS, how are you handling these things, everything should be handled consistently. So there's a lot less discretion involved in the process. And it's more following through processes and procedures. The other piece of this is, you know, we talked about the fact that I think that with respect to some of these deferrals when the deferral period is over, given the economic climate that we're in, that the deferrals were beneficial to the individuals who receive them and unfortunately, because as we talked about the suspension of the supplemental unemployment compensation, and some of the other issues that are happening within the economy now that some of these deferrals may turn into these deferred accounts may migrate into 22:01 more problematic accounts. And, you know, one of the things that needs to be thought about is, you know, how do we handle these, obviously a deferred account should not be treated any differently, you know, the customer received the deferral, you decided as the finance company to make that decision. And now the customer when the deferral period is over, is back, being alive paying account, and then you have processes and procedures to what happens if the customer comes in says, I've got financial challenges, and what do I do? And, you know, to Michael's point, you follow the processes, and you're clear to the customer, and you don't treat them any differently. 22:43 With absolutely, Mark and I are usually in violent agreement, almost things. 22:49 But one of the one of the other things, economic factors I think the creditors have to take into account is 22:59 as far as 23:00 deferrals are concerned, 23:02 if you have a deferral because someone lost their job, you know, is some COVID related deferral, they go back, the deferral ends, they go back into repayment, and then they go into default because they can't continue to pay it's up to the the institution to determine whether or not they're going to offer another deferral or how they're going to handle that. But I think the thing that, that the institutions are painfully aware of, is the collateral backing the loan as a depreciating asset. The vehicle is a depreciating asset. So the deeper into the hole the customer gets, the bigger that deficiency is going to be. And the less value there's going to be in the asset to cover that deficiency. If there's a repossession and sale of the vehicle. 23:51 So, you know, in some instances, it's a difficult conversation to have with consumers and I'm not sure that I would necessarily recommend you 24:00 Having that with consumers. But at some point consumers need to understand I think that 24:06 keep, if you keep putting off the inevitable, you're just digging yourself a deeper hole, it may be better, it might be a better decision to decide to turn the car in. If, if you know you're not going to be able to pay for it, because you're just going to be in a deeper hole. And if you don't have a job to go to, maybe that's not an issue. 24:29 If you're looking for a job, maybe it is an issue. It's a very difficult place to be and I know that later on, you sort of want to talk about some of the moral aspects of all of this and it becomes a very, very difficult thing. But economics are amoral, you know, they they are what they are. And the institutions have to be concerned about their own safety and soundness, their own survival, and they have a asset that's continuing to depreciate and the the likelihood 25:00 Every payment is weaker and weaker. At some point, you just have to make a decision that you're going to cut your losses on that one to the best you can. 25:11 And I'll stress an earlier point that I said no, you need to be consistent in those decisions Absolutely. 25:18 You know, 25:20 basis I would have I would have a process or a decision tree for those those kinds of decisions. So that when when they get called into question and they will get called into question, you can go and you can show with every transaction you followed the process. 25:42 We're going to talk a little bit more in depth on the CFPB and a little bit but you know, I just wanted to touch on it. What actions are is the bureau choking around raw? Hmm, excuse me, wrongful repossession. 25:58 I can talk a little bit about that. 26:00 Since I've got a consent order going on right now that we're negotiating 26:06 in our firm and 26:09 I think part of the biggest issue 26:14 that's out there right now is determining what is a wrongful repossession? 26:20 You know, I think the CFPB has a different view than what most finance sources might consider a wrongful repossession. 26:31 The nature of the repossession market place through the use of forwarders and independent contractors, which, as I stated before you as the finance source are responsible for because they're operating at your agent 26:52 at least as far as the CFPB is concerned. 26:57 There's a time lag 27:00 If you if you issue an A repossession order it goes to a aggregator or forwarder. And then it gets issued to trucks that are in the areas where you expect the vehicle might be. 27:15 And when you issue that order, from the point of time you wish the order to the time it gets the truck back can take a period of time. 27:24 In that period of time, a consumer may make a payment that brings their contract back into 27:33 compliance back into current status. 27:38 So then you send a rescission order for the for the repossession. Well, you also have that span of time when you make the rescission order before it's actually going to get to the truck, and the truck may have already picked it up in that in that space of time already, and I don't know what the right 28:00 amount of time is 28:04 between 28:06 sending a rescission and 28:10 when a repossession can be deemed wrongful, 28:16 but it's got to be some reasonable amount of time 28:21 that allows the player now to function and to physically get the vehicle, get the the precision order communicated appropriately. And if the truck has already picked up the car, 28:37 get 28:40 get that communicated back to the bank or to the finance company, so that they can then tell them to bring the car back, you know, to wherever it was that they that they put it. And 28:54 I think as a practical matter, I think what most companies do in that space 29:00 Have Netherworld I call it between that communication fog period is, you know, they do their best to get the car back to the consumer. And I think most of them don't report it as a repossession. They don't 29:17 make any pass any charges on to the consumer, but the consumers without the use of their vehicle for some period of time. And I think that's what the CFPB sees as wrongful and compensable. 29:30 And it's really just a, it's a timing issue. And I think where the CFPB is going to need to be careful around here is because I know the consent order we're working on is not the only one that's out there. 29:46 But whatever number that they come terms of what's reasonable for purposes of this consent order, I think they need to be clear that it applies only to this petition. 30:00 ticular situation. Otherwise you're getting into this. And I know we're going to talk about that in a bit too. But you're getting into this rulemaking by enforcement kind of scenario where whatever happened in a given consent order, regardless of the facts, the conduct provisions become 30:23 essentially the rule, and it's a rulemaking that has had no input from the public and has had, you know, no 30:33 educated guidance, if you will, 30:36 happening, it's just trying to deal with one particular scenario. So that's where I think they need to be Be careful and they need to understand that you know, the situation the the communication situation between creditors and and repo agents is far from perfect, and that is not something that we as creditors can fix. 31:00 That's got to be something that happens. 31:04 I think in a collaborative way between creditors and the and the aggregators and the repo agents out there. Mark, do you have any thoughts about that? I was gonna ask you quite an I, I don't want to put you on the spot. But you know, is the CFPB pushing for some type of technology requirement to be implemented, where, you know, I understand fully the process and where the breakdowns can happen. 31:33 You know, to the extent that technology is this a gap that can be filled as the technology exists, potentially out there for a more I don't want to say real time but more current time communication that could be within the realm of reasonableness without creating economic burdens. And I think you you mentioned and I think it's true, to the extent that most larger finance companies and participants in the auto finance 32:00 Market use third parties to coordinate independent repo companies all across the country? 32:06 Is it something from a vendor perspective that should be incumbent on those third parties to have better communications with the repo companies to try to make sure that there is at least some more currentness to what's happening? I 32:26 think the answer is yes. And yes, and yes, but 32:32 I think creditors are between a rock and a hard place because they're, they have of the aggregators and the repossession agents, you know, they, they can't impose technological requirements on them and they have to use them. You know, the, the, you know, the big finance companies and banks, they're not going to put together their own fleet of repo trucks around the country. 33:00 Right cars so they're they're sort of at the mercy of the repossession industry. And I don't know that the repossession industry is averse to 33:11 coming up with some sort of technological solution. I don't think it's that hard. I think certainly the capability exists to create a communication system and even an app based communication system that could quickly deliver repo orders and rescission orders. And 33:34 what to do an exception search circumstances, they can deliver that quickly. I just don't think it's been. I don't think it's been done yet. And there's no pressure as far as I can tell on the repossession industry to do anything. Because, you know, they own the market. You know, who else who else is the or the finance companies going to turn to? So I think unless there's some regulatory pressure 34:00 On the on the 34:02 repo industry, I don't think we're going to see any sort of 34:10 technological 34:12 solution anytime soon because the finance companies have absolutely no leverage. 34:19 Well, and if you don't see Michael and me for a little while because we're developing the app 34:25 you know, the other thing that kind of strikes me is wrongful repossession is really a creature of state, you know, jurisprudence really because very fact based courts determine because what is reasonable and it's really not a concept that is statutorily defined to my knowledge. So I think it's interesting and I get it you know, the the CFPB has very broad you dap authority 34:54 which allows it to overstep its 34:59 stay 35:00 tutori oversight, if you will, under you know, the Federal consumer protection regulations. And I think you know, not having been involved with this case, but just listening to me it's it sounds in you dap, which to me is the way they bootstrap into regulating activities which are already the subject to state examinations of finance companies, the also the purview of a court as a result of a in a lawsuit or something being filed based on the activities undertaken by a creditor. So I think it's interesting, you know, that they are, you know, stepping into this but it's not, it's certainly not the first time and, you know, again, 35:44 not the last time where they were you dap 35:50 process and again, I think it's the additional a abusive 35:55 that 35:57 that is, you know, kind of 36:00 Driving this for them because to me this is, you know, it's like asking where something commercially reasonable and then coming up with a consent or what is commercially reasonable, which again, focus more on our aspect of it because it's 36:16 consumer can't reasonably consumer can't choose their repo agent and they can't really avoid 36:24 the harm. So they're, you know, I think it's a straight up unfairness 36:32 analysis, but it is, it is a it is a 36:40 environmental situation, I guess, you know, it's it's the current state of the industry. And it's not something that the that the 36:51 finance companies are really going to be able to impact without 36:57 the cooperation of the repo entity. 37:00 stray. And unless the repo industry has some sort of incentive, be it regulatory or economic. I'm sure that, that we're going to see that and, you know, is there a better way to do this? Absolutely. And anybody who has run a business or run a division or had to manage people, you know, oftentimes, you can find better ways to do things, but you do things the way you do them. Because that's what you have the capability to do right now. And it's going to cost you a lot of money to change the way you're, you're doing things and I think that's simply I think that's what it it becomes so maybe one of our sponsors will figure out how to manage this and put a solution in place and we'll be there consultant 37:57 FTP portion of our discussion, but I'm gonna hold 38:00 Stop for a minute because I do have one more question around repossession. 38:05 My question is what should lender be thinking about an upper offer operationalizing policies around repossession, and you guys have probably touched on this, but I thought maybe we can just punch in on it a little bit further. 38:22 I'm hoping they've already done it. 38:25 Here, their compliance management system should have wonderful processes and procedures and policies that relate to repossession. 38:36 You know, again, it's not new. 38:40 It is something that for many years, but it's very ripe for litigation because particularly class action litigation because you send out the wrong notice once you send it out 10,000 times you don't wait the right period of time you don't have the right processes in place. So from an operational perspective, 39:00 You know, this is probably a good time to do some fire drills and some testing to make sure that what you have in place works. Because I think as Michael and I said at the beginning, loss mitigation and repossession is going to rise very high up on the forefront of examinations. We know it's already on the crpgs. Radar, they figured out that cars get repossessed if they don't get foreclosed, I guess, unless you're in Louisiana, and that's what you call it. But 39:27 the so they know that, you know, there's going to be a lot of potential repossessions going on because the economy we know there were a lot of accounts that were deferred, many on a scale much greater than before. And so they're going to be under the microscope on examination, you know, as you know, as finance companies and creatures of state law and half of the states where they have examinations to understand and show their processes and policies and procedures that relate to repossession. So 40:00 I think it's just more of running some running some drills and making sure you got everything lined up. 40:08 Again in violent agreement with Mark 40:12 that's the theme. All right, so before we dive back in, we do have a polling question from the audience that should be popping up here. It is. 40:23 So we'll give people just a quick second answer. Don't be shy. 40:28 Yeah 123 There we go. 40:43 Well, looks like got most of our answers. 40:47 Are you guys surprised by any of this? I'm not. 40:55 Buy they buy the one answer that says that they're putting the lesser 41:00 resources towards loss mitigation. 41:05 Which in that case, I just hope that they gotten out of the business. 41:16 The CFPB, a little further deep dive into that. So Kathleen kraninger laid out her enforcement priorities in April 2019, during a speech before the Bipartisan Policy Center. 41:29 No since then, I'm interested in your opinions on where she's fallen short since then. 41:37 Sir, so she gave a great speech 41:41 was on April 17 of last year, which I and it's on the CFPB website. If you just go on the CFPB website and you search Bipartisan Policy Center, you'll come up with her opening remarks, which I think are really quite exciting. 42:00 But she basically said 42:05 that she started her tenure at the CFPB by spending a year going around the country on a listening tour listening to different stakeholders, both industry and consumers and vendors. And 42:21 she said there was a few areas of consensus among those were that the CFPB is mission and the agency itself are critical to our economy and are not going away. That a level playing field playing field amongst financial services providers as an important goal, that bad actors and undermine the integrity of markets, they should be held accountable. And that all stakeholders expressed a strong interest in protecting consumers that they differ on the best way to accomplish that mutual interest. And then from there, she went on to lay out, you know, the tools, the CFPB 43:00 Hasn't the toolkit 43:02 to work to 43:06 manage their mission to achieve their their mission and their goals. And the first was an I thought the order that she chose was was interesting and actually appropriate, 43:20 because I don't think her predecessor necessarily would have agreed with her rank order of 43:28 the toolkit. But her first tool is education, understanding that a significant number of consumers lack financial literacy don't understand financial transactions are too easily led astray by 43:47 maybe placing their trust and folks that maybe they shouldn't place their trust in but a her idea was a basic 43:57 providing basic financial literacy 44:00 education to consumers was a very important goal. And I think she's done a pretty good job on that. And they've put some new resources on the website for consumers, how they're getting that to consumers beyond just putting it on the website, I know that I sign up for alerts. I don't know that, you know, my neighbor down the street does that. But I would assume that they are pushing this out through consumer advocates, advocacy groups and other 44:28 channels to get to folks so that they know that those tools are there. But after education, she named rulemaking and guidance and the basis of that, that point was that the industry needs clear rules of the road and clear guidance on how to comply with those rules of the road. And again, I think our predecessor may have disagreed with or not, Mick Mulvaney, but the one before 44:57 may have disagreed with her on that point. 45:00 Because the only rulemaking that was done during Director Cordray, his tenure, if I recall correctly, was the rulemaking that was mandated under the Dodd Frank act. There was not an effort, a particular effort to 45:18 do appropriate rulemaking and and guidance, and I'll use the the auto finance guidance, which came out in March of 2012. On fair lending. That was that was guidance that was later struck down by the by Congress, under the Congressional Review Act, because they said, this is a substantive rule. And you didn't go through the APA Administrative Procedures Act rulemaking process, and that's what you should have done. You can't just put guidance out there, which is a substantive rule and just call it guidance. So she indicated her desire to be more 46:00 To hear more closely to the rules around rulemaking and and guidance, and I think that was a positive step, and we've not seen 46:10 much in the way of guidance under her tenure, that would would rise to the level of a rulemaking like we saw in the prior administration of the of the Bureau. 46:23 The third area she focused on was supervision authority. And this she describes as the heart of the agency, that this is where they can do the most good is through their supervision authority because they can, they can find problems before they 46:40 have a huge impact on consumers. They can add it to their list of things that they look for when they're doing other exams. Very effective way of 46:52 of managing 46:55 compliance with consumer protection laws. her fourth 47:00 And final area was enforcement. And I don't think she I don't think it was the final area in the sense that it was the least important. I think it has as much importance as anything else. But she recognized the 47:17 the the limitations of enforcement. 47:21 A, you have to pick and choose who you're going to enforce against and be. 47:27 You're You're only dealing with one institution, one, possibly bad actor. And clearly, because enforcement actions when they get settled or public, or if they go to trial, they're public. The rest of the the industry can sort of glean from the those resolutions, what they need to be doing, but so much of what happens is so facts specific, and you know, that's why I think she prefers rulemaking 48:00 guidance over enforcement enforcement, certainly for bad actors. But if you really want to get 48:08 folks to do something, or to behave in a certain way, then you need to go through the appropriate rulemaking process. And then finally, she did something which I thought was very interesting, which was, it was an admission that 48:25 how do we 48:27 how do we determine if we're doing a good job as an agency? You know, she said, in some instances, for example, you would, you would say, 48:37 we addressed so many complaints or we brought so many enforcement actions, but she said if you're educating consumers and you're giving appropriate guidance, well, then maybe you shouldn't be having so many complaints that you need to address because you've you've given the tools to the industry to know what to do and how to do it. 49:00 correctly. So I think that's something that that that she she still struggles with, I think the biggest issue that Director kraninger probably has on her plate right now. 49:11 And, and I think, you know, if if we have an election and she decides to leave the post and somebody else comes in, is you have a big staff that don't all necessarily hew to the desires of the director. 49:31 On the enforcement side, you know, there are deputy directors who are managing that enforcement. Very oftentimes they will leave the staff attorneys, you know, to their own devices to bring the cases that they think need to be brought. And then you have to as counsel for those being enforced against you find yourself having to escalate issues, which you don't like to do because it pisses them off. You know, but 50:00 But you find yourself having to escalate issues, because from our view, it's inconsistent with the directives that the director has laid out. And 50:11 but, you know, humans are humans. And this is part of the problem is that people are going to act the way they're going to act. And the the leadership of the bureau can't do anything about it unless they know about it. And we're not often willing as 50:33 institutions or counsel to let leadership no about it, because we don't want to open up a different can of worms and that sort of thing. I think kraninger in terms of sticking to her, her goals, 50:47 and in her speaking, I think she's done a relatively good job. I don't think that that has been communicated necessarily appropriately, all the way down the road, the way all the way down the origin. 51:00 chart in a way that's particularly effective. So you we find ourselves fighting those battles from time to time. 51:09 That where we say, you know, this seems inconsistent with what the director has laid out as her vision for the for the bureau. Can we talk about that? 51:20 Well, Michael, I know you've referenced the consent order, you're negotiating and to a certain extent that seems to be at opposite with what her goals are, right? Because you're being put into a situation where potentially you're seeing rulemaking or whatever through potential enforcement. 51:40 Yeah, and that's a challenge. You know, we don't like rulemaking by enforcement, because it is so fact specific and it doesn't come with input from stakeholders, 51:53 industry stakeholders, or even consumer stakeholders, you know, in a enforcement action. nobody's talking to the consumer 52:00 are advocates about how do we handle, you know, this particular consent order because up until the time it's made public, it's confidential. 52:09 So the 52:12 that's not happening. That's why I think they need if they want to affect an industry practice, which with wrongful repossessions is certainly a place that they're interested in that I think they need to affect that industry practice through a rulemaking where they can get the appropriate guidance that they need to be able to come up with clear guidance for industry that industry can reasonably achieve. 52:40 And one thing I just want to add, Michael mentioned that one of the elements in her priorities was supervision, examination, and I would say that, while maybe a little more subtle, their supervisory highlights that they publish to me to a certain extent is also rulemaking through social 53:00 revision, because some of the things that they are coming out with are seeing as violations. They're making a determination that it is a violation oftentimes when there's no authority for that. And again, through Michaels comment, that stakeholders may not have been involved all stakeholders involved in reaching a conclusion. 53:22 You guys are making the job really easy. You really put all my follow wishes out on the CFP. And so I think it might be appropriate to kind of switch gears and talk about account referrals. I know from you know, the editorial side, that's something we're keeping an eye on, I think the industry is really keeping an eye on. So with that in mind, I think I think the big question, at least for me, is where does a deferral and a default begin and what what are the moral, ethical and legal obligations around deferral and default for lenders 54:00 Well, Michael touched on the moral implications. I mean, 54:06 the, let me just kind of, for me a deferral and a default, those are legal terms, right? You defer to a period of time where payment is due, you have a default because you fail to meet your contractual obligations. So, I think that the issue really is not that it should not be that difficult to determine. 54:30 You know, the deferral in essence is a forbearance by the creditor of what otherwise would be a default because the customer doesn't have the means to make the payment and in our auto finance space as opposed to other industries, where rules were came out that said, you must do this. In the auto finance space it was more 54:57 finance company lender specific in 55:00 agreeing to grant the deferral. So by granting the deferral is a forbearance based on the customer's request of saying, Hey, I'm impacted by COVID in one of these five different ways. And so I'd like to, you know, see if there's something you could do to help me out. 55:19 The default occurs when the customers cannot 55:25 maintain their obligation under the contract or under the loan. And so when we talk about, well, you know, what are the obligations the moral, ethical and legal obligations? 55:38 You know, when you start worrying about the moral and ethical obligations goes back to some of the things we talked about before, which is processes procedures and not discretion. 55:49 And, obviously, there might be situations where the specific facts may motivate a creditor to make 56:00 Make a decision on a one off basis by following the processes. You might have a situation of someone who is in default, that if you just go by the book, you say, there's nothing I can do for you. Next step, we move forward into loss mitigation. And the individual involved may say, this is something that I want to escalate, because that's part of the path that's in my processes and procedures. And part of what happens when you move something to an escalation is that there's a realization that it's more than just mechanical. And so I think typically, lenders to the extent that there are exceptions to policies and procedures, is where the human element comes in. There is a justifiable reason that individuals are involved and make a decision that in this case, this is what we want to do, based on the facts, but I don't think typically 57:00 Unfortunately, in a business decision, 57:03 you know, the ethics and morals of what goes behind it, 57:08 motivate you, beyond having processes in place that recognize that there may be in that you should respond accordingly. And I'm probably talking in circles. But, Michael, I don't know if you understand where I was going or not one of the first things 57:26 I think it was in our orientation at law school, one of the very first things that was communicated to us is that the law is a moral. 57:37 It's not designed to to choose one morality over another. It just is, and the law gets applied, as its as it's written, that's the that's the objective. 57:53 And then you have this window in your question, you have this other ethical and moral overlay. 58:00 The way I think about ethics is, 58:04 is ethical 58:07 means 58:09 for me with integrity and honesty, it may not be the outcome that's best or that the consumer wants or that may be best for the consumer. But it can be ethical, because you are treating similarly situated people in the same manner, you're being fair, you know, ethics is, is kind of a fairness and integrity, grounded kind of concept. morality is is different things to different people. And I think that 58:46 a, I'm not sure that it has a place necessarily, I mean, it may be very unpopular for saying this, but I'm, I'm not sure that it has a place and 58:59 it 59:00 In influencing ethical business decisions, 59:05 because the challenge that you come up with, when you start putting a moral overlay over what is already an ethical business decision, is I think you run the risk of treating similarly situated people differently based on someone's subjective view of what's right, and what's the right thing to do and what what what should we do here? You know, and I think you got to be very, very careful there. 59:37 You know, I think businesses like to operate morally, you know, they want people to, you know, be good people, and they want people to 59:46 behave with integrity and to follow the rules and that sort of thing. But I think that's really much more of an ethical kind of construct, you know, that that you you 1:00:00 conform to the ethics that the business has has laid out. Presumably, those, those ethics are based on some 1:00:12 pseudo moral 1:00:15 idea that this is the right thing to do. And we're going to treat everybody the same the same way. But when you start getting into making moral decisions, and particularly when you start getting into making moral decisions on an individual basis, that becomes very, very dangerous. I think. I'm not I'm not objecting to morals. And I'm not I'm not saying morals are a bad thing. I'm just saying that consistency with a business environment is better than making decisions on a 1:00:48 because you feel badly for somebody or because you think that there should be a different outcome, because it wasn't their fault. Well, that's fine if you're going to have that different outcome that outcome for everybody. 1:01:00 Because it was their fault. 1:01:03 And to the extent you have a process that 1:01:06 documents from a decision tree and how things get escalated for what happens, you know, you are not, as Michael said, putting yourself in a situation of treating similarly situated people differently. 1:01:22 So you need to justify it. And, you know, it's, it's, it's unfortunate because, you know, a lot of times bad facts result in bad outcomes. And you know, so you need to have consistency in how you're operating your business. 1:01:42 I would love to sit here and talk to you guys all day. I'm seeing but we are pushing on on time. So I want to thank take the time to thank you both so much for coming on today. It's always a pleasure chatting with you guys. Um, you know, this concludes our session. 1:02:00 And I just want to thank again defy solutions for sponsoring this session and everyone that joined us please remember to 1:02:08 join for our third and final session in the webinar series, which will be a presentation from Meredith garlin Hannifin, Senior Vice President, and risk and compliance of risk and compliance and CHIEF COMPLIANCE OFFICER exit or finance. And that session sponsored by lightbox thanks again for joining us. See you next time. 1:02:30 Thank you </div> [/toggle]
