#158 - Will The CFPB Come For Your Dealership w/ Shaun Peterson

Hello, everyone. Welcome and thank you for joining us for this episode of the Independent Dealer podcast. Today we have a friend of the show, Mr. Shawn Peterson, back with us. Shawn, how are you?

I'm doing great. It's good to be back with you guys.

It's good to see you, Sean. And Shawn, if people didn't know, is still in the automotive industry. So, Sean, tell us what you're doing.

So I am with Buckeye Dealership Consulting.

Executive vice president and Chief Legal officer. So, you know, we've got to be the lawyer in the room.

So, yeah, I'm excited about the new.

Opportunity that I've got and still get.

To work with independent dealers all across.

The country and helping them with their reinsurance programs, helping them get set up with products that can help their customers and for them to take advantage of, of making money off of it.

That's great. We're glad that you are still in the industry because a lot of us out there really depend on your sage advice. And being able to still see you, I think, lends a lot of security to a lot of us who depended on you for years. Shawn, thanks for sticking in the business.

That's my pleasure. And I'm always a phone call away.

Welcome to the Independent Dealer Podcast with hosts Luke Godwin and Jeff Watson, a podcast by Dealers for Dealers. Here we go.

Well, Sean, since the last time we talked and maybe you didn't know, there was a presidential election and a congressional election and a Senate election, so seems that we have a new sheriff in town across the board, what does that mean to us used car dealers?

Well, if you look at the outcome of the election from the administration change, the presidential election, I think it's going to be significant change than what we have been accustomed to over the last four years. If you remember the Obama years and the onset of the CFPB and some of the things we talked about as the CFPB was rolling out, one of the key things that we talked about was this idea of regulation by enforcement. The CFPB was very active in bringing enforcement cases and then telling companies, and it wasn't just in our space, but telling companies, you have to abide by what we do in these enforcement cases. So we'll sign a consent order with the company. We'll require that company to do X, Y and Z. Other companies that are in that space, you need to look at these things and you need to do them. So we're not going through the rulemaking process where we put it out for public comment and people can chime in and say, all right, this works and this doesn't, or here's the cost benefit analysis. It's, here's an administrative order with force of law penalties in most cases against those companies. Now the rest of the industry, you take what happened over here and implement it into your business practices. We didn't see a lot of that. Certainly the CFPB was active in enforcement. A lot of people will say that they weren't as active as they could have been or should have been, but we didn't see a lot of the expectations, so to speak, of this idea of regulation by enforcement. I think that's going to come back in full force. I think you'll see, in fact, the acting director of the cfpb, maybe I should back up and say one of.

The.

Advocacy things that we worked on for years was trying to get the CFPB accountable and by that looking for two different things. One is, you know, having. Having a five member bipartisan commission that was not subject to, you know, this kind of. We talked, you know, amongst friends about, you know, some kind of dictatorial feel almost right, that the director of the CFPB couldn't be fired. You know, was the most powerful person in Washington. And there was a lot of truth to that until the Supreme Court had a case that came through last year. And at the end of the end of that case, the CFPB director could now be fired by the President for any reason whatsoever. So that happened. Well, she was encouraged to resign. I mean, she officially resigned, but, you know, she was, she was gonna get, get the boot one way or the other. So now you have an acting director. And the acting director here over the course of the last couple of weeks has been pretty aggressive in outlining what his vision is for the CFPB until the new director comes on board. And I'll tell you a little bit about the new director, but the acting director has been very vocal about the CFPB becoming more aggressive in and their enforcement actions. So he put a blog post out on, actually sent an email to the staff and took that email, put a blog post out on the CFPB's webpage and said this. Over the coming weeks, we will be reversing policies of the last administration that weakened enforcement and supervision. So CFPB coming to.

So exactly. I mean, that's it, I guess, you know, with the CFPB being a huge change. Sean, what would an independent dealer do if the CFPB walked in and said, hey, these are the things you're doing that we feel are just, you know, wrong. And so here's the enforcement we want to place on you as an independent dealer. And that independent dealer looks and goes, hold on, I'm well within the law. Is there any recourse with the cfpb, or do you just go, okay, cfpb, we're going to do what you tell us what happens there.

Well, and I think this strategy is true, whether it's the cfpb, whether it's the ftc, whether it's your state attorney general, whatever the case, you know, whoever is going to bring an action against you or threatening an action against you. And I speak from experience, having been on that side of the ledger for a part of my career. A lot of times those actions will start through a subpoena or what we call civil investigative demand. And in Those subpoenas, or CIDs, there's a request for information. And look, I'll be the first to tell you because I wrote them, I signed off on them when I was a chief in Ohio's Attorney General's office, we would ask for the moon, knowing that that probably wasn't the scope of the investigation in its entirety. So the first thing you need to do, and I, you know, I know this is hard for independent dealers to hear sometimes, but the first thing you need to get an attorney, you know, try to do this on your own becomes a big challenge because of that fact. Right. A lot of times they're asking for things that aren't relevant or even what they're looking for at the end of the day. So getting an attorney that can help you narrow the scope of the investigation to what is it that you're really looking for? What is it that you're looking for to do? What kind of changes are you looking to see? And then.

Excuse me.

And then help you navigate your way from. From start to finish. A lot of times, litigating and going to battle against them is not the way to go. It's probably rarely the way to go, to be honest with you.

There's usually how you spend more money doing that, right?

Correct.

Correct.

And there's usually an outcome that they're looking for that's short of that, that involves consumer restitution, involves change in practice, involves some oversight moving forward. But to do it on your own is going to be a difficult thing.

If that happens, you don't just go hire your basic attorney that you've been using around town, right?

I would suggest not. I think what you want is somebody that is well versed in dealing with that office, but also has some background in automotive law. Right. So, for example, if the South Carolina Department of Consumer Affairs.

Sorry, let me grab a drink here.

You're still getting over Covid, right?

Well, we had a little run of that, but thank goodness our symptoms were pretty good. We're in the middle of recording in the midst of this historic event in Texas. Snow and ice and cold and.

Yeah, it looks like you got power, though.

We had power came on yesterday afternoon for us. Good.

You've still got Internet.

Hopefully it stays knock on wood. So anyway, you know, having. Having an attorney that, that knows the office that you're dealing with. So South Carolina Department Consumer affairs, you want somebody that knows how to navigate that office and can understand the legal requirements that they're looking for, understands automotive.

Law, all those, you know, you want.

To try to find that.

Very good. And so we understand that the new administration is going to be stricter on probably consumer finance. I think that's a given. How about the rest of what. What do we see as toward different regulatory events and taxes and how does that trickle down to the Senate and the House, you think?

Yeah, well, good question. So I think there's going to be lots of different issues that, you know, on the consumer finance side that the dealers need to be aware of, and some of that will congressionally. That doesn't mean, when I say happen, progress, doesn't necessarily mean that there'll be legislation that's passed, but there could be hearings and sorts of, you know, bring this to light sort of stuff. So I think you're going to see a heavy, heavy emphasis on whether it's the cfpb, whether it's the ftc, the Department of Justice and Congress, both the Senate and the House. I think you're going to see a big push for fair lending, racial equality, those sorts of things, especially in light of the narrative that's happened here over.

The course of the last year.

In fact, that's one of the things that the CFPB interim director mentioned. He's gonna take bold, swift action on making sure that we have racial equality. So I think you'll see hearings and you'll see enforcement cases and you'll see maybe even rulemaking on what that looks like down the road. Arbitration could come back up. There's been discussion about repo moratoriums. You know, that was one of the concerns we had as the pandemic started. The Military Lending act, if you remember the Military Lending act issues that came up and whether, you know.

Some of.

The part, you know, Some of the automotive transaction was covered by the military act versus not right. There's some discussion about having that come back up. Here's a big one that's going to come for sure. And starting to happen at the state level that I imagine you'll see again, some push congressionally in part because the Military Lending act has this 36% what we call or what the consumer advocates call all in apr. So starting to see some legislation at the state level that addresses that same concern. Right. You know, putting a cap on apr. But what's happening, just as an FYI, is there's a conflation of what is and what is not the cost of credit. Right. What actually gets calculated in apr. They want to take some of the things that are listed in the amount financed, you know, the actual premium prices for gap and credit, life and service contracts, and then move them over to the amount or to the, to the APR side. And that just. It conflates what's going on. So you'll see that sort of stuff. And again, emphasize that it can pop up in lots of different places. State legislatures is going to happen. All this stuff could happen. State legislatures and Congress and federal agencies and state agencies. It's what dealers have to be on their toes, I'd say.

What can a dealer do to really make sure that they're doing things the right way? I mean, even if you're doing it the right way, it's probably. You could be out of bounds. But I mean, what's the best thing for us to do? What are the major things for us to look for?

Well, it's important for you to have.

A compliance management system. You know, that's one of the things that we've talked about. And you know, when the CFPB first started, that was a big push of theirs, right? Have a compliance management system that's, you know, got your policies and procedures documented, you're training your staff, your auditing, your, you know, got somebody that's designated as a compliance officer. You have to have all that stuff. And.

My good friend Terry o' Loughlin.

At Reynolds and Reynolds, and I'll steal this line from him because he and I have given tons and tons of presentations together over the years. And the first time he said this.

Really grabbed my attention.

I'm like, what? He said that which is worth doing is doing wrong. Like, Terry, we're talking about compliance.

What are you talking about? And he explained it this way, he's like, you know, that which is worth.

Doing is doing wrong.

If you have something in place and you're doing it even if you're doing it wrong, you'll get credit with regulators for the effort based on the fact that you've got something in place. Right? If you don't do anything, if you just kind of stick your head in the sand, that is, that's going to get you in more trouble than doing it, doing it wrong, you know, not intentionally wrong, but doing it incorrect. So having process in place, having a.

Compliance booklet, compliance process within that booklet, safe flags, red flags, safeguards, those type things that, that, you know, associations have been preaching for years. These are things that you really have to have in place. I guess even because you're right, because probably none of us are doing it 100% correct, but at least we're trying something. I read something where it talked about different issues with repossessions and that coming up and you had mentioned the moratorium. I mean, I believe that we're close to the end of the pandemic here. I think we can see the light in the tunnel. I mean we don't really, we don't think that a moratorium would be coming from this administration, do we? That's number one. And number two is it seems like some people may repossess wrong. And I think it's so important to make sure you follow state rules and regulations properly. Can you speak to any of that so that even if we do get pulled and they look at repos, they, they don't kill us.

So I would be very surprised if there's anything that congressionally can get done with repossession.

You know, it was something that, there.

Was a lot of talk last year, some things in the House started to develop, but it just wasn't, wasn't the appetite for passing legislation that would put a moratorium on repossession like they did with evictions and that sort of stuff on the mortgage side, I think that it would be very hard to get past even with a 50, 50, 51 with, with the vice president casting the tie breaking vote. I just don't think that they would.

Would be able to do that in.

Part because you still have filibuster rules that are in place.

So I think that some of the moderate Democrats would have a hard time.

Getting on board with that in its current form. Would the CFPB try to do something by executive fiat like we saw in some state gubernatorial offices? I doubt it.

Although if you remember former Director Cordray.

He sent a letter when the pandemic was kind of at its peak. Here in the late spring, early summer of last year, sent a letter to the then CFPB director encouraging her to put a moratorium on place.

Again, I think that would be very.

Sticky from a legal perspective and probably not something that they would be able to pull off by fiat.

So I think repossessions will be able to continue to happen from a federal standpoint. But to your point, Luke, doing it correctly is a must. And there have been repeated instances of the CFPB looking at companies and their repossession processes and dinging them. Now it's been most of the time in supervision situations which mean it's not a public enforcement action where they could publish. You know, this company did XYZ wrong. But I can assure you that repossession is something that is at the forefront.

Of the CFPB's mind right now.

Yeah, it seemed, it seemed to be from that last thing they kind of put out. And it was even talking about reimbursing people for improper repos. I mean it sounded really scary. And I'm sure if the CFPB ever came looking at any of buy here, pay heres, you're going to find something that's going to cost you some money. So I think just doing it across the board and helping take care of customers when you can, probably helps us out there, wouldn't you think?

Yeah, 100%. Here's, and here's what I always tell you. You know, if you're looking at, if you're standing at the, at the, at the tower of your dealership, you know, you built this little fort around it, you know, you're always up there looking where, where are the, the weak points, right? Where are the places where, where the outside can get in? Look at these kind of forward facing, easy to find from a consumer attorney perspective, easy to find weaknesses, right? Repo is a way in the door. Your forms can be a way in the door, right? And that's typically how the CFPB and other regulators work that way as well. But private attorneys, they're going to look for the slam dunk, right? You filled out the buyer's guide incorrectly. Well, that's a violation. So we're gonna, we're gonna make that, grab that issue you didn't submit. You know, if you're in a right to redeem state repo or you know, you gotta send out your notification, whatever the case is, and you didn't do that or you didn't provide the right information, you know, we'll look for easy ways in and then once we get in, we can pull the jaws of life open and start poking around at other things. And from a regulation, by enforcement standpoint, the CFPB had a history of doing that. Right. They would find the one or two little things that were slam dunk winners. Right? We got you. We got you over the barrel. Now let's kind of expand. What are some of the things that we want to do? What are some of the legal theories that we want to pursue? Well, we got you here, so we're going to push on these other issues that may not be as slam dunk, but we know you can't really fight back because we got you on X, Y, and Z. So we'll take ABC out for a ride and see what happens.

Hey, guys, sorry to interrupt the podcast real quick. Our sponsor this week is independent dealer podcast guys, so be sure you are, A, sharing this with a friend and B, leaving us a review on Spotify or the Apple Store. Right, Luke?

Yeah.

And just. Jeff, it is so important that we. That we get out there, right. Dealers need education. So we're not doing this for us. We're doing this to try to help. So if you ever need us, to reach out to us, if you ever need us for anything, we probably know somebody that can help or we can help. So we're here to help y'.

All.

Huge. And Our email is infoheindependentdealer.com it's in all the show notes. You guys know that we are not vendors. We're not here to sell you anything. We're not trying to pitch a product or some CRM or DMS or marketing strategy or something that's going to fix it all. We are literally just dealers helping dealers. We wanted the education, so we asked the pros, and you guys get to listen in on the conversation. So we're always open to new ideas. If you have anything you specifically want us to cover, recover, going deeper, just send us a quick email and say, guys, talk to so and so or, hey, get this dealer on. They're doing this Great. And if you are a dealer who is doing something great and you just want to get on and chitchat, we would love to have you on the podcast. We don't want to have to talk to vendors all the time. We would love to talk to other dealers and share their experience with the world.

And, Jeff, we do a clubhouse thing every once in a while too, right?

Yeah. This is going to date the episode because clubhouse probably won't be a thing in another six months. But as of February 2nd, this recording.

Yeah.

If you have an iOS phone at this point and you're on Clubhouse, we're going to try to do some follow up chats and conversations, which is just a fun little 20 group. It's like a miniature 20 group that we can do live weekly and we've had a couple great get togethers with other dealers and we just talk about whatever topic anyone wants to bring up. It's been great motivational stuff. So, Luke, should we get back to the episode?

Let's do it.

Definitely. All this talk is ruined my appetite for breakfast. But what Sean, I mean, does it does a lot of it and we've talked about this before, but a lot of it comes down to just respond to angry people and don't piss people off, right? I mean, so much of those dealers or those lawyer, consumer advocates and CFPB and Better Business Bureau and all these people, it kind of like they find that little hole in your armor by someone going and just being so pissed off that they're going to take it to the highest person they can and they end up finding some lawyer that will take their case. So many times we think, oh, these, you know, these customers aren't going to do anything about it. They're just going to cry and complain and then it'll just go away. But you got to be careful because you're going to eventually piss off the wrong person that actually has some connections or ends up getting connected to the right person.

Well, and I'll say this, it's drawing on my experience both as a chief of a consumer protection unit at Daeg's office that had a complaint department and then in private practice representing dealers. You know, coming at it from those two perspectives. When I was the chief, it was a very rare situation where we were the first point of complaint, right? Almost always the customer went to the company first. Company had a crack at resolving the issue. So when I got into private practice, you know, I heard from dealers all the time and this phrase used to drive me nuts. I did nothing wrong.

Right?

So automatically, right, they would get a consumer complaint. I did nothing wrong. Shields would go up and get defensive. Well, yeah, you may have done nothing wrong, but that might not be the point, right? You know, you gotta look six steps ahead. Dealing with the consumer in the moment may make the most sense. I'm not saying that that's true in every situation, but dealing with the consumer in the moment could save you time, heartache, a complaint with the ag, complaint with the cfpb, and it's interesting you bring up complaints. Jeff, again, this is one of the things that the CFPB director, interim director just here in the last couple of days has made a top priority about complaints and complaint resolution. He said, I understand some companies have been lax in meeting their obligation to respond to complaints. It's the bureau's expectation that companies provide substantive responses to address issues consumers describing their complaints. He's going to make that a priority. So don't let them get there.

Right.

If you have an opportunity to take care of it beforehand, don't let them get there.

It's way cheaper to have a higher delivery cost expense on the bottom line than it is to have one of these enforcements. And even if you're right, a lot of times it's better to fix that car or don't repossess or turn the car back on or all those things. And I think that's the major thing that dealers need to understand.

Yeah. And it's our ego that gets in the way, right?

It's the ego.

I didn't do anything wrong. Or they did this to me. Or they did.

Yeah.

Who cares?

Yeah.

Who cares?

Yeah.

Well, that's great.

It's interesting. No, again, this is not tax advice, nor my tax attorney or accountant, but I'm not aware of many situations where civil penalties are tax deductible.

Ooh, that would hurt the owsers. Yeah. Well, Sean, we really appreciate you being with us and we're so glad to know that you're still in the industry. Are we going to see you at conventions and things like that, or you're going to be around?

Absolutely. One of my responsibilities with Buckeye Dealership Consulting will be strategic relationships and partnerships. So I'll be working very closely with state and national associations to make sure that we can be a resource to them, help the dealers with products and services we have to offer and look for opportunities to partner with those associations and bringing some benefits to them.

Dealers get a hold of you right now?

Yeah, I'll be there.

Yeah. And how can dealers get a hold to you, Shaun?

Yeah, so the easiest way to get a hold of me is via email at Spederson S P E T E R S E n@buckeye reinsurance.com.

Wonderful.

Awesome. Sean, good seeing you.

It's good to see you guys. Appreciate the opportunity to be with you.

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