Although increased regulation within the powersports space was not mentioned in the Consumer Financial Protection Bureau’s list of priorities for the next two years, powersports lenders should “remain cautions,” said David Gemperle, partner at Nisen & Elliott’s auto finance group.
“As far as launching a larger-market participant rule for powersports, the CFPB would have said it, if that were in their two-year plan,” Gemperle told Powersports Finance yesterday. “However, we’ve seen them go after buy-here, pay-here dealers — not based on the advisory authority but the unfair practices authority.”
The most likely form of regulation will come from a complaint-based reaction, meaning the bureau might look into allegations found in its complaint database about consumers not getting the APR they were advertised, or being required to purchase ancillary products, Gemperle said. “They are looking for things that go wrong from a consumer perspective in transactions every day — regardless of the sector in which it appears,” he said.
The biggest problem powersports lenders will face, if regulatory oversight is applied, will be “allocating resources,” Gemperle said. “If the CFPB moves into the space like they have in auto and applies the same template, the expectation from the compliance standpoint is based on larger banks and their amount of resources. To push that down to a smaller company will be very detrimental to the bottom line.”
For indirect lenders in the space, the CFPB would most likely apply the same standards in regard to disparate impact that they do in auto finance, according to Gemperle. “We’ve already seen them move into motorcycles with Evergreen Bank. They will apply those same principles and classification methods to look for disparate impact,” he said.
Last year, the Department of Justice reached a settlement with Oak Brook, Ill.-based Evergreen Bank Group to resolve allegations of discriminatory lending practices relating to indirect motorcycle lending. The consent order required the bank to pay $395 thousand in consumer redress and to implement dealer compensation policies.
Overall, to prepare for regulation, lenders and buy-here, pay-here dealers “should be cautious of how they are upselling consumers on ancillary products, how they are doing their advertising, and whether those ads are vetted through the Truth in Lending Act,” Gemperle said. Financial providers should also assume fair lending “applies to everybody” and adopt an appropriate policy.
Nisen & Elliott, a Chicago, Ill.-based law firm, represents Yamaha Motor Corp.’s captive finance company, Yamaha Motor Finance Corp., and advises on its policies, procedures, fair lending practices, and safeguards.