As the Bureau of Consumer Financial Protection scales back its regulatory oversight of auto finance lenders, more auto retail compliance cases may fall to state attorneys general.
The change at the bureau, prompted by the election of a Republican president and Republican Congress, may lead auto dealers to think that political affiliation is a proven indicator of regulatory leanings that applies to the state level, too. But that's not necessarily the case.
While political affiliation plays a role in a state attorney general's likelihood of pursuing auto retail compliance cases, other factors can also have an effect. To stay out of regulators' crosshairs, dealers should remain vigilant about compliance training, experts say.
The bureau has no jurisdiction over franchised dealerships, which are regulated at the federal level by the Federal Trade Commission and the Department of Justice. During the Obama administration, though, the bureau went after auto retail lenders in ways that were felt in dealerships. But in a February speech to state attorneys general, Mick Mulvaney, acting director of the bureau, said the bureau would depend on state regulators more often to enforce consumer protection laws.
In 2015-17, 15 major auto retail compliance cases were pursued in states with Democratic attorneys general, six in New York alone, according to Terry O'Loughlin, director of compliance for Reynolds and Reynolds' document solutions. Republican state attorneys general pursued six major cases in that time frame, O'Loughlin said.
"You're always going to see more activity at the state AG levels than you would [at the federal level], even at the Federal Trade Commission," said Michael Benoit, partner at Hudson Cook, a law firm that focuses on consumer financial services. When it comes to smaller cases, "the FTC has to manage its resources, and may not want to go after two rooftops in Iowa."
Political leanings often determine the likelihood that attorneys general investigate dealership operations. But dealers should also note which way the political winds are blowing, Benoit said.
A variety of factors can shift the winds in a red or blue state, he said. Take Florida, for example.
"Florida voted for Donald Trump, but it is trending blue right now, particularly after the hurricane in Puerto Rico," Benoit said.
An influx of Puerto Ricans are migrating to the Interstate 4 corridor between Tampa and Orlando. The area is considered a political bellwether that could alter the behaviors of the core voter population, he said.
Florida Attorney General Pam Bondi "is a Republican who behaves like a Republican, but is tuned into where the heads of the people in the state are politically," Benoit said.
Last June, Bondi's office settled a complaint of unfair and deceptive practices by Beach Blvd. Automotive, a used-vehicle dealership, and its auto financing arm in Jacksonville. As part of the consent order, the dealership was required to pay customers $5.1 million in debt forgiveness.
O'Loughlin said members of the Democratic Attorneys General Association have vigorously pursued investigations in the auto finance market.
"Car business being as broad as it is, it's fertile ground for those types of actions," O'Loughlin said. "If dealers are not careful about their advertisements and the laws that they should be observing, they could find themselves in the middle of a major investigation."
Still, Benoit said, dealers are better off staying ahead on compliance than counting themselves unbound from auto finance regulation in Republican-led states.
Regardless of political affiliation, any attorneys general who identify "really egregious behavior that is harming consumers [are] not going to hesitate to go after it, even if they're business-friendly," Benoit said. "Politics is all about perception."