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Carlaw F&I Legal Desk Book (7th edition) – The Answer Book for Finance and Insurance Professionals, presents a law-by-law, regulation-by-regulation guide through the legal maze that dealers face every day. Authored by Thomas B. Hudson, Michael A. Benoit, Ralph J. Rohner and the attorneys at Hudson Cook LLP, this new edition reflects the latest updates to the federal laws and regulations affecting F&I practices.
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The Consumer Finance Protection Bureau created a rule banning mandatory arbitration agreements in contracts used by the entities it oversees, which includes auto creditors and buy-here, pay-here dealers.
The move opens up these firms to class-action lawsuits. The existing agreements specified that consumers must settle disputes via arbitration and were barred from joining class-action suits.
"These clauses allow companies to avoid accountability by blocking group lawsuits and forcing people to go it alone or give up,” said CFPB Director Richard Cordray. “Our new rule will stop companies from sidestepping the courts and ensure that people who are harmed together can take action together."
Supporters of the bill consider it a blow to big banks. Some point to the recent Wells Fargo credit card scandal as reason to ban arbitration.
“We fought for this rule because it provides a valuable check against corporate misconduct and are pleased that the CFPB has adopted it to protect the public interest,” said Massachusetts Attorney General Maura Healey.
However, the rule covers all firm overseen by the CFPB, regardless of size.
"This rule will force small businesses to bear additional costs in defending class-action litigation, particularly meritless suits," said Steve Jordan, CEO of the National Independent Automobile Dealers Association. "Those costs will ultimately be borne by consumers, and in the case of those who are credit-challenged, it could prove to be too much."
Industry insiders have been waiting for this rule since Congress passed the Dodd-Frank Act that created the CFPB. The Act specifically called for a study into the impact of arbitration on consumers.
The CFPB released the findings of that study in 2015 and a rule has been expected ever since.
But many thought that might change with the election of Donald Trump and an anti-regulatory climate in Washington.
The Republicans in Congress can still squelch the rule before it takes effect in three months by invoking its Congressional Review Act authority.
This would kill the rule and bar the CFPB from creating a replacement.
Attorney Michael Benoit said dealers should start contacting their Senators and Congressmen to push for the CRA.
Benoit said affected parties could also take the CFPB to court, arguing that it lacks the authority to interfere in private contractual agreements.
Until the matter is settled one way or another, Benoit recommends continuing with business as usual.
“It’s a little early for dealers and finance companies to take any action other than exploratory actions into what they might do,” he said.
The Reynolds and Reynolds Company announced the release of the Reynolds LAW New Hampshire F&I Library, a comprehensive catalog of standardized, legally reviewed finance and insurance (F&I) documents for franchised new car and truck dealers in the state of New Hampshire.
The printed documents in the LAW New Hampshire F&I Library also are available in a digital format, which can help facilitate the conversion to laser-printed transactions and e-contracting. Reynolds Document Services maintains licensing agreements with all major providers of electronic F&I solutions.
The Consumer Financial Protection Bureau’s ban on mandatory arbitration agreements faces almost immediate opposition from lawmakers in both Houses of Congress.
On July 10, the CFPB unveiled a rule banning mandatory arbitration agreements in contracts used by the entities it oversees, which includes auto creditors and buy-here, pay-here dealers.
By July 20, several Republicans announced they intend to file a Congressional Review Act (CRA) joint resolution of disapproval in the Senate against the arbitration rule. The move came soon after the ruler was formally noticed in the Federal Register and became subject to the CRA.
“Members of Congress previously expressed concerns with the proposed version of the rulemaking – concerns that were not addressed in the final rule,” said Idaho Sen. Mike Crapo in a press release announcing the intention to file.
Crapo is chairman of the Senate Banking Committee. His counterpart in the house, Texas Rep. Jeb Hensarling, also announced that the House Financial Services Committee has introduced a resolution of disapproval to stop the rule.
The House resolution was initially sponsored by Pennsylvania Rep. Keith Rothfus.
“The CFPB’s anti-arbitration rule hurts consumers and it’s another example of the problems caused by this rogue and unaccountable agency,” Rothfus said in a release. “We know that consumers get better results through arbitration than through class action lawsuits.”
The Congressional Review Act permits Congress to overturn an agency rule within 60 legislative days after an agency has submitted the rule to Congress. Once the rule is overturned, another rule cannot replace it.
Some member of Congress have voiced their opposition to repealing the rule. Massachusetts Senator Elizabeth Warren, the architect of the CFPB, took to Twitter to voice her disapproval.
“We must have the CFPB’s back as Wall St's buddies in Congress try to roll back the rules,” she tweeted.
However, the CRA only requires a simple majority vote in both houses, so Warren and other critics can do little to stop the repeal.
The Senate resolution has 23 co-sponsors. The House resolution is cosponsored by all 34 Republican members of the Financial Services Committee
The CRA was only successful once between its creation in 1996 and this year. But it has been used 14 times so far this year.
Many CFPB watchers were surprised Director Richard Cordray went ahead with the rule.
“It was pretty bold of him to go forward,” said Terry O’Loughlin, director of compliance for Reynolds & Reynolds.