After Electoral Dysfunction, What Subprime Auto Can Expect From A Biden Administration – Finance and Banking – United States – Mondaq News Alerts



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It’s only fitting that we’ll end the year with more
uncertainty, this time as a result of the elections. It seems safe
to expect a Biden/Harris administration in January, but the road
ahead remains a bit foggy pending the Georgia Senate run-off
elections in January, the outcome of which will determine which
party controls the Senate. Under Democratic control, we could see
more progressive programs, while a Republican majority could put
the brakes on any aggressive policy agenda. The outcome may even
affect state-level regulation as a divided government could result
in state legislators filling the void.

No matter what happens in Georgia though, a change of
administration following so closely on the heels of unprecedented
public and private borrower assistance sets the stage for increased
scrutiny and enforcement on auto lending. The question is how much,
how soon and by whom?

Clues in the Transition

The make-up of the Biden transition team provides a hint at the
administration’s intended direction. There’s a heavy
presence of former Obama administration officials and pro-consumer
advocates. With the two run-off elections in Georgia, however,
there’s a chance for more progressive cabinet figures if the
Democrats manage to win both seats (a 50-50 Senate tie will be
broken by Vice President Harris), or a push toward the center if
the Senate remains in the hands of the Republicans.

Leadership of the Senate Banking Committee is also up for grabs.
If the Republicans do not control the Senate and the body is in a
50/50 tie, then the leadership of the Banking Committee could
potentially change parties. But even if the Republicans hold the
Senate, Republican leadership will shift. Republicans have
committee term limits for chairs. Current Chairman Sen. Mike Crapo
will move on and Sen. Patrick Toomey, who has been a free market
advocate, could take over.

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COVID-19 Relief

COVID-19 relief will be at the top of the Biden agenda given
much of the relief provided under the CARES Act will be expiring at
year’s end and efforts to grant further relief in 2020 have
stalled. Stimulus checks and enhanced unemployment benefits have
helped keep delinquencies in check so far, but a bridge to the
other side of the pandemic is needed to maintain stable
performance.

While everyone is expecting another relief bill, and putting
cash into the hands of consumers will benefit the auto sector in
many ways, there is concern that restrictions, such as repossession
moratoriums (as then-Senator Harris had herself called for earlier
this year), will be imposed as part of any deal. Some have speculated that if Sen. Toomey
takes over the Banking Committee, he could shutdown discussions
extending relief programs based on his recent criticism.

Given the lack of direct help by the government, lenders and
servicers have met the moment with a remarkable volume of
extensions, workouts and forbearances. But as discussed at the
 Non-Prime Auto Financing conference
, it will be a
challenge going forward to keep up with documentation of
modifications and ensure servicing systems properly execute upon
what was intended. Further, applying forbearance practices fairly
and equally will be a key to avoiding legal troubles. Servicing,
collections and repossessions will all be under greater scrutiny as
the pandemic persists and threatens the most economically
vulnerable consumers.

Regulation and Enforcement

The immediate question is whether there will be an uptick in
regulation, legislation, rulemakings or enforcement under the Biden
administration that will significantly impact subprime auto
participants.

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Following this summer’s Supreme Court ruling
in Seila v. CFPB that permits the President to
remove the head of the Consumer Financial Protection Bureau (CFPB)
at-will, President Biden is expected to install a new leader. Going
forward, we might see the CFPB stretch its reach to the full limit
of its authority. With a more consumer-friendly CFPB or Federal
Trade Commission (FTC), we might see more coordinated action with
the State AGs. In addition, issues, such as disparate impact, that
were largely ignored during the Trump administration, may make a
comeback.

Taking a look at recent actions from these agencies, we can see
where enforcement might continue or expand. Earlier this year, the
FTC took action against Bronx Honda for discriminatory conduct by
that dealer. One of the Democratic commissioners at the FTC, Rohit
Chopra, put out a statement calling for the FTC
to use the authority it has in rulemaking to act more in the auto
market and focus on discriminatory intent and disparate impact.
Should Chopra (a reformer who helped launch the CFPB) take a
leading role at the FTC, this will likely be on his agenda.

Recently, the CFPB has acted to punish lenders who they argued had
knowledge of repossession fees charged by their vendors, entering
into at least one consent order were they found repossession agents
demanded that consumers pay separate storage fees for personal
property left in repossessed vehicles and refused to return the
items until the fees were paid. There will likely be more scrutiny
on practices related to the foreclosure and repossession
process.

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In addition to federal agency activity, California’s new
“mini-CFPB” will be a concern for fintechs offering
consumer financial products or services in California. It has set
the tone that if Washington won’t act, the states will. Auto
lenders may be carved out of the new enforcement authority (due to
lobbying efforts), but other states may follow California or
reconsider how their enforcement mechanisms operate.

Looking Ahead

With the pandemic continuing and communities facing a return to
lockdown situations, lenders and servicers will need to stay
up-to-date on all of federal, state and local laws. As the pandemic
drags on, states may seek new ways to offer relief where there was
none before. Market participants cannot assume that
virus-restrictions on collections or repossessions have expired or
won’t be revived if local circumstances change. Any such
activities would be in addition to those of state attorneys
general, who are expected to continue the aggressive, coordinated
efforts we’ve become accustomed to seeing over the past four
years.

The resiliency, even buoyancy, of the market through the crisis
has largely been the result of the government’s focus on
protecting consumers by putting cash in their banks, which they
used to pay their debts. As the sun sets on relief programs without
a certain sunrise in the form of further stimulus, the next phase
of consumer protection may expand to greater regulation and
enforcement, creating a whole new set of challenges for the
industry.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.



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