States Step Up Enforcement, Anticipating CFPB Decline

While there is some optimism for deregulation among auto finance lenders, lawyers are cautioning clients not to not be lax on monitoring, because state attorneys general and financial services departments are stepping into the “void” left by the Consumer Financial Protection Bureau, said Ken Rojc, managing partner of Nisen & Elliott LLC’s Automotive Finance Group.

Lawyers and analysts who spoke to Auto Finance News agreed that the CFPB isn’t letting up on regulation overall — at least as long as Richard Cordray remains director. However, the bureau has also signaled a shift away from auto finance fair lending issues in a December blog post.

“We haven’t seen any [CFPB] enforcement actions in the auto fair-lending space, and part of that may be due to the fact that we are in an end-game posture,” Rojc told AFN. “They have investigated most of the major banks and finance companies, and those finance companies have either entered into settlements, adjusted their programs, or passed the regulatory muster for the CFPB.”

While the bureau may move on from fair lending, states are continuing enforcement and increasingly teaming up across state lines to accomplish their goals, said Jenny Lee, a trial partner at Dorsey & Whitney LLP and a former CFPB official.

“The CFPB has upped the ante for shepherding the multiple states coordinating with one another,” she told AFN. “The Federal Trade Commission, previously at the federal level, also brought together a gang of states and did multi-state national actions against different companies, with the FTCs backing — but the CFPB [has been] doing it more.”

For example, Santander Consumer USA paid a combined $26 million, in a written agreement with Massachusetts and Delaware in March, over allegations that the auto lender knew its dealer networks in those states were funding loans that were likely to fail.

States are more frequently taking advantage of a rule in the The Dodd-Frank Act, allowing states to enforce laws passed by the bureau, even if it’s not state law, Lee explained. However, there is little clarity about how this kind of enforcement works.

“Legally, it’s unprecedented for states to go around enforcing federal consumer financial law,” she said. “It’s all being done behind the scenes: Interagency interactions of the CFPB and attorneys general, collaborating behind the scenes. There is this perfect little [get around] that allows them to do this.”

New York, California, Massachusetts, Illinois, and North Carolina are “generally understood” to be the most active, because of the resources they wield, Lee said. However, even Texas and Florida have increased their coordination and enforcement — despite republican leaning tendencies — due to the sheer volume of consumer financial cases in those states, she added.  

“If the CFPB were to hypothetically be taken out of the picture, you’d still have that muscle memory of all those states interacting with one another, and coordinating investigations,” she said. “There’s infrastructure for the states to submit information to one another — ‘give me your file on auto finance lender company X’ — all of that is now in place. So it’s a perfect storm for states to continue with that.”