As someone who has overseen multiple industries as a financial regulator, I have a lot of respect for the professionals who work daily to monitor and implement compliance at indirect auto lenders.
Compliance obligations for auto lenders come from all sides. Multiple federal laws touch on auto lending activities including the Truth and Lending Act, the Fair Credit Reporting Act, the Equal Credit Opportunity Act, the USA Patriot Act know-your-customer rules, and the Federal Odometer Act. Compliance officials also must be mindful of general Federal authorities like prohibitions against Unfair, Deceptive or Abusive Acts or Practices.
Meanwhile, the 50 states also have heavily weighed in with their own regulatory mandates on topics such as GAP insurance limits (See California Assembly Bill 2311 and Senate Bill 1311), fee caps, document retention standards, interest rate caps, cancellation options, and an array of notices and disclosures.
All this regulatory activity should not come as a shock. People – and their legislators – care about their cars. Cars are the primary means we use to get to work or school or to places to have fun. As the famed writer E.B. White once wrote, “Everything in life is somewhere else, and you get there in a car.” Auto loan debt also catches regulators’ attention because it occupies a big chunk of the household balance sheet. At 1.55 trillion US dollars in Q4 2022, auto loans are the third largest category of household debt behind mortgages and student loans.
For a typical compliance officer, navigating this cascade of Federal and State requirements can feel like a flashback to the classic video game, Asteroids, where each time your space ship shoots an asteroid, the rock isn’t eliminated. Rather, you’ve created two more smaller obstacles. The phrase “whack-a-mole” is apt.
Informed helps auto lenders work through these obligations. We have a unique vantage point because we stand at the intersection of the indirect auto lending industry’s compliance activities. We work with six of the top ten lenders, so we can leverage the collective compliance knowledge of these companies to track emerging obligations. Each year our compliance insight grows. If there is an obscure state requirement, one of our clients is likely to know about it and asks us to keep track of it.
Compliance Corner is part of an ongoing series where we will share statutory and regulatory developments.
Let’s look at recent changes in state caps for documentary fees. A documentary fee is charged by auto dealers for preparing title and registration work, recovering administrative costs for collecting taxes on the vehicle, releasing or satisfying liens and other tasks related to preparation and retrieval of documents. Various states have caps on the allowable fees dealers can charge, while other states, like Idaho and Oklahoma, do not.
It’s important to monitor these fee caps as lenders who approve loans with non-compliant fees run the risk of earning the ire of regulators. At the recent American Financial Services Association Conference, Texas Consumer Credit Commissioner Leslie Pettiejohn warned that her enforcement team was targeting lenders who boarded loans in excess of state fee caps.
Here are some examples of changes in caps.
- Pennsylvania: In Pennsylvania, documentary fees increase annually based on the Consumer Price Index (CPI). On January 12, 2023, Pennsylvania increased the maximum allowable document fee to $374 for processing title work manually and $449 for online processing of title work.
- Missouri: The Missouri Department of Revenue, in February 2023, increased the maximum car dealer fees by $65 to $565. Like in Pennsylvania, this step up reflects increases in the CPI.
- Washington: As of July 1, 2022, dealers can charge up to $200 for document service fees.
- Illinois: The maximum amount dealers can charge in 2023 for document handling is $347.23, a $23 increase over 2022. Illinois’ maximum fees are also tied to the CPI.
Tom Oscherwitz is Informed’s VP of Legal and Regulatory Advisor. He has over 25 years of experience as a senior government regulator (CFPB, U.S. Senate) and as a fintech legal executive working at the intersection of consumer data, analytics, and regulatory policy.