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OCC Updates Floor Plan Lending Guidance
On October 27, the OCC issued an updated Floor Plan Lending booklet of the Comptroller’s Handbook. The revised booklet (i) summarizes the basics of floor plan lending for examiners, including a description of indirect dealer lending and the regulatory and legal foundation for floor plan lending; (ii) provides banks with sound risk management practices and describes regulatory risk rating guidelines; and (iii) includes an expanded examination procedures section with examples of risk rating cases and factors for determining the quantity of credit risk and the quality of credit risk management. The updated booklet replaces a similarly titled booklet issued in March 1990, as well as section 216 of “Floor Plan and Indirect Lending” issued in January 1994 as part of the former Office of Thrift Supervision’s Examination Handbook.
FTC Announces Final Consent Orders Against Auto Dealers for Alleged Deceptive Advertising
On October 20, the FTC announced that, following a public comment period, it approved final consent orders against two Las Vegas auto dealers for allegedly engaging in deceptive advertising practices. In June, the FTC filed two administrative complaints against the auto dealers for (i) misrepresenting the purchase price or leasing offers of vehicles; and (ii) failing to disclose key information in its advertisements, including if a down payment was required at the time of purchase. The final consent orders were unanimously approved in a 5-0 vote by the Commission and prohibit the dealers from (i) engaging in further action that results in violations of the Consumer Leasing Act and the Truth in Lending Act; (ii) misrepresenting the cost of financing or leasing a vehicle; and (iii) stating the down payment amount or percentage without also disclosing repayment terms and the annual percentage rate.
CFPB Takes Action against Indirect Auto Lender over its Debt Collection Practices
On October 1, the CFPB ordered an indirect auto lender and its auto title lending subsidiary to pay more than $48 million in restitution and consumer relief over allegations that both companies engaged in unlawful debt collection practices. The CFPB alleged that the companies used a variety of “deceptive” tactics to coerce borrowers into making payments on their remaining loan amounts. The CFPB further asserted that the companies provided inaccurate information in their advertisements to borrowers regarding monthly interest rates, and misled borrowers about the effect of changing payment due dates or the ramifications of extending loan terms, which resulted in additional accrued interest owed over the life of the loan. Under terms of the consent order, the companies agreed to, among other things, provide $44.1 million in restitution and loan balance reductions to affected borrowers and pay a $4.25 million civil money penalty.
U.S. Senators Introduce Automobile-Focused Cybersecurity Legislation
On July 21, Senators Blumenthal (D-CT) and Markey (D-MA) introduced legislation, the Security and Privacy in Your Car Act (“SPY Car" Act), that would protect drivers’ privacy while allowing them to remain connected to the growing technological advances in the automobile industry. In addition to directing the National Highway Traffic Safety Administration (NHTSA) and the FTC to develop federal cybersecurity and privacy standards that would secure motor vehicles manufactured for sale in the United States and protect drivers, the SPY Car Act seeks to establish a rating system, or “cyber dashboard,” that “informs consumers about how well the vehicle protects drivers’ security and privacy” beyond the minimum standards potentially set by the NHTSA and the FTC. The requirements that motor vehicles: (i) be equipped with reasonable measures to protect against hacking attacks; (ii) maintain the ability to reasonably secure data collected within electronic systems; and (iii) be equipped with capabilities to immediately detect, report, and stop attempts to intercept driving data or control the vehicle, are among the cybersecurity standards outlined in the SPY Car Act. In regards to privacy standards, the legislation proposes the following: (i) transparency, such that owners or lessees are explicitly aware of the collection, transmission, retention, and use of driving data; (ii) consumer choice, allowing owners or lessees to opt out of data collection and retention without losing access to other features, such as key navigation; and (iii) marketing prohibition, which would ban companies from using personal driving information for advertising purposes without obtaining the affirmative express consent of the owner or lessee. The introduction of the SPY Car Act follows Senator Markey’s 2015 Tracking & Hacking: Security & Privacy Gaps Put American Drivers at Risk report, which showed gaps in the auto industry’s ability to prevent hackers from accessing internet-connected features in vehicles.
CFPB and DOJ Reach $24 Million Settlement with Indirect Auto Lender to Resolve Discriminatory Pricing Allegations
On July 14, the CFPB and DOJ announced a $24 million settlement with an indirect auto lender to resolve allegations that the lender offered higher interest rates to minority borrowers compared to white borrowers with a similar credit risk profile. Specifically, both agencies contended that the lender allowed their partnering dealers excessive discretion to increase the lender’s base interest rate with a “dealer markup” on auto loan contracts, which resulted in discriminatory pricing. Under terms of the settlement, the lender agreed to, among other things, (i) pay $24 million in restitution to affected borrowers, (ii) impose dealer markup rate caps on auto loans, and (iii) improve its policies and procedures related to auto loan pricing and compensation program. Notably, the Bureau did not impose a civil money penalty due to the lender’s responsible conduct. The Bureau filed its consent order in an administrative enforcement action. In a separate announcement, the DOJ filed its complaint and consent order in federal court, which will require judicial approval. The lender was represented in the matter by BuckleySandler.
New York AG Schneiderman Settles with Auto Dealers Over Alleged Deceptive Auto Advertising
On July 14, New York Attorney General Eric Schneiderman announced two settlements with auto dealers over allegedly deceptive advertising practices. The first settlement was reached with a White Plains-based auto dealer that allegedly misled consumers by promoting, in its print and online ads, illusory sale and lease prices by including “discounts or rebates that were not available to most consumers, and thus, did not represent the actual sale or lease prices.” According to the Attorney General, rebates or discounts offered to “military” or “college graduates” were among the deceptive advertisements used by the auto dealer. An investigation by the AG’s Office revealed that the dealership would only make the rebates or discounts available to certain military personnel and recent college graduates. In addition to failing to comply with the Attorney General’s Advertising Guidelines for Automobile Dealers, the Attorney General alleged that the ads used footnotes and asterisks that contradicted or materially modified the principal message of the advertisements. The dealership will pay $32,500 to the state and has agreed to reform its advertising practices.
In a separate action, the Attorney General announced a settlement resolving allegations that 22 dealerships “persistently defrauded consumers with misleading promotions and fraudulent sales tactics.” According to the Attorney General’s office, the dealers’ advertisements included certain game cards that led consumers to believe that they would be guaranteed winners of certain items – such as cash, a free vehicle, or an Apple iPad – if they received a winning ticket containing three matching symbols. However, virtually none of the consumers won a prize when they brought in their winning tickets to the dealers. In addition to misleading game cards, the dealers were alleged to have charged unauthorized fees for vehicle maintenance plans that had not been requested by purchasers and to have upcharged the retail sales price on cars to effectively nullify discounts offered to consumers. Under the terms of the settlement agreement, the dealers will pay $310,000 in penalties and restitution.
New Hampshire Passes Legislation to Regulate the Offering of Guaranteed Asset Protection Waivers
On July 6, Governor Maggie Hassan (D-NH) signed into law Senate Bill 119/Chapter 207 to regulate the offering of GAP waivers. The act also amends the terms of Consumer Guarantee Contracts to limit the consumer’s ability to bring an action in a court of law. The act is effective September 4, 2015.
Minnesota Passes Legislation to Exclude Guaranteed Asset Protection Waiver Policies from Insurance Definition
On June 13, Governor Mark Dayton (D-MN) signed into law H.F. 3/Chapter 1, which, in part, excludes Guaranteed Asset Protection (GAP) waiver policies from the definition of insurance. Effective August 1, the act specifies that the GAP waiver statute will not apply to certain insurance law requirements, including those relating to: (i) commercial deals; (ii) a debt cancellation or debt suspension contract; and (iii) credit life, credit accident and health, and credit involuntary unemployment. The act also allows for GAP waivers to be sold for either a single payment or as a monthly periodic payment. Finally, the act includes certain GAP waiver disclosures, such as cancellation of the GAP waiver by the borrower within the free look period, which is no less than 30 days.
FTC Resolves Claims Against Auto Dealers Based on Alleged Deceptive Advertising
On June 29, the FTC filed two administrative complaints and issued proposed orders against two Las Vegas auto dealers to resolve allegations that they engaged in misleading advertising practices that misrepresented the purchase price or leasing offers of their vehicles, as well as the amount actually due at signing. In addition, the FTC also contends that the auto dealers failed to disclose other key information in its advertisements, such as the need for a security deposit, whether a down payment was required, and the terms of repayment. Under the proposed consent orders, the FTC will require both dealerships to refrain from misrepresenting the actual cost to purchase or lease a vehicle, and to comply with requirements of the Consumer Leasing Act and the Truth in Lending Act. No monetary judgment is proposed for either auto dealership.
New York AG Announces Nearly $14 Million Agreement with Local Auto Dealers Over Deceptive Sales Practices, Plans to Sue an Additional 11 Auto Dealerships
On June 17, New York Attorney General Eric Schneiderman announced an approximate $14 million agreement with three jointly-owned auto dealers in connection with the alleged unlawful sale of add-on products, such as credit repair and identity-theft prevention services. According to the AG, the auto dealers failed to disclose the costs and fees of many “after-sale” items to consumers, in some instances resulting in the addition of $2,000 to the purchase or leasing price of a vehicle. Furthermore, the AG contends that the dealers concealed that they were charging consumers for the add-on services, or misrepresented that the services were free of charge. Under the terms of the settlement agreement, the auto dealers must, among other things, (i) pay more than $13.5 million in restitution to affected consumers and (ii) pay $325,000 in penalties, fees, and costs to New York State. In addition to the settlement announcement, AG Schneiderman made public that his office has served notices of intent to file suits against an additional eleven dealerships for allegedly engaging in similar practices.