This year saw the beginnings of major compliance considerations changing course in vehicle finance. Below are the five Powersports Finance compliance stories with the greatest potential to affect lenders as the industry heads into a new decade.
New commissioners added this year to the Federal Trade Commission have expressed interest in holding senior compliance officers personally responsible for company actions, said John Redding, partner at Buckley LLP, noting that the change should enhance companies’ compliance initiatives in the long run. The FTC has the authority to investigate any unfair or deceptive practices in consumer finance, including telemarketing, false advertising and automatic payment methods. 2019 was the first time that the agency added five commissioners since the FTC was created in 1914.
In an effort to solidify the definition of an “autodialer,” the FTC opened the door for the circuit courts to step in and define the contested tool, said Buckley’s Redding. Specifically, the Ninth Circuit ruled in the case Marks v. Crunch San Diego LLC that an autodialer was any device that stored numbers — or the equivalent of a smartphone. Conversely, the Third Circuit ruled in a separate case that a person had to initiate the call.
While changes to the Fair Debt Collection Practices Act are geared toward third-party servicers, first-party servicers will need to pay close attention to the changes, said Stefanie Jackson, a partner at Ballard Spahr. For instance, the FDCPA’s contact frequency limitation could be an issue. “You could see that impacting the first-party space through CFPB exams and oversight activities,” she said. “For some creditors, that’s not going to be a big deal. They might already only call once every couple of days. They have a light touch, but others have a much heavier touch, particularly in some of the subprime lending niches.” The FDCPA has not been updated since it was enacted in 1977, so the new proposal brings “a whole new world” to debt collection, she noted.
Lawmakers in New Jersey turned their attention in October toward lenders providing timely GAP insurance refunds to qualified borrowers, said David Gemperle, partner at Nisen & Elliott. Under the new rule, lenders will have 60 days to provide refunds to borrowers for terminated finance agreements. “If [creditors are] using an outsourced servicer or they’re doing it in-house, they need to evaluate whether the refunds are being delivered to the customers, both when they have a repo account and when the customer pays off [the loan] early,” Gemperle explained. The CFPB has also signaled that it is taking an increased interest in ensuring that lenders remain compliant with GAP insurance refunds.
A lawsuit in Missouri challenged lenders’ right to collect interest on defaulted loans, said Nisen & Elliott’s Gemperle. In the case, the borrower defaulted on a loan provided by GM Financial. The captive lender then repossessed the vehicle and sued for the deficiency balance — plus interest. The courts dismissed the case in favor of the borrower because interest accrued between the default and the final judgement, which was a violation of state law.