NADA Requests CFPB Memo Outlining 'Goal' of Limiting Dealer Discretion

MCLEAN, VA. (July 13, 2015)-The National Automobile Dealers Association (NADA) on Monday asked the Consumer Financial Protection Bureau (CFPB) to make public an agency memo that appears to plainly undermine the Bureau's long-standing claims that it is not targeting auto dealers through enforcement actions. The request was made under the Freedom of Information Act (FOIA) and signed by NADA Chief Regulatory Counsel Paul Metrey.

According to a June 30, 2015, article in American Banker, three senior CFPB officials sent CFPB Director Richard Cordray a memo outlining how a proposed settlement with American Honda Finance Corp. would further the agency's "goal" of "significant[ly] limiting dealer discretion."

"The significant limitation of dealer discretion, which in turn reduces fair lending risk, is one of the goals we have been seeking with respect to the indirect auto matters, and this settlement proposal attains that goal," Jeffrey S. Morrow, Jane M.E. Peterson and Rebecca J.K. Gelfond wrote in a June 16, 2015, memo to Cordray about the proposed Honda settlement, according to American Banker.

Dealer discretion is the amount of an auto loan the dealer is able to discount at the retail level for a customer. Since this type of discounting begins and ends at the dealership, any targeting of dealer discretion is tantamount to regulating what actions a dealer is permitted or not permitted to take.

The Wall Street Reform and Consumer Protection Act - better known as Dodd-Frank - specifically prohibits the CFPB from regulating auto dealers. Yet the Bureau's actions have caused many, including both Republican and Democratic members of Congress, to question whether the CFPB has attempted to skirt its jurisdictional boundary in an effort to regulate dealers.

"If true, the statements made by senior CFPB officials in this memo directly contradict repeated statements, including testimony before Congress, from Director Cordray that he is aware and respectful of his Congressional mandate not to regulate dealers," said NADA President Peter Welch. "Consumers benefit tremendously from dealer discounts, so they deserve to know if these discounts are in danger of being unjustly and unfairly eliminated by overzealous Washington regulators."

The memo, as well as proposed consent orders against Honda and two other captive finance sources, appear to have been leaked to American Banker, as none of the documents referenced in the article are in the public domain.

A copy of NADA's letter to CFPB's Chief FOIA Officer is available here.