Addressing Concerns in New Auto Consumer Protection Rule

WEBVTT

1
00:00:02.879 --> 00:00:07.799
You're listening to Leaders and Lending from
Upstart, a podcast dedicated to helping consumer

2
00:00:07.879 --> 00:00:13.519
lenders grow their programs and improve their
product offerings. Each week, here decision

3
00:00:13.519 --> 00:00:17.600
makers in the finance industry offer insights
into the future of the lending industry,

4
00:00:18.039 --> 00:00:22.839
best practices around digital transformation, and
more. Let's get into the show.

5
00:00:23.359 --> 00:00:26.559
Welcome to Leaders and Lending. I'm
your host, Jeff Keltner. This week,

6
00:00:26.559 --> 00:00:30.160
I'm joined by Paul Metry from the
National Automobile Dealers Association. Paul,

7
00:00:30.160 --> 00:00:34.679
thanks for taking the time and joiners
here employer. I'm excited that we would

8
00:00:34.679 --> 00:00:37.039
talking at a lot of stuff on
the podcast, but auto is top of

9
00:00:37.119 --> 00:00:41.320
my mind. But I wanted to
start with the FTC ruling that you guys

10
00:00:41.320 --> 00:00:43.960
are talking a lot about, So
give me the background. I'm not an

11
00:00:43.960 --> 00:00:46.000
expert in this space. I mean, like a little bit of regulatory,

12
00:00:46.000 --> 00:00:49.399
a little bit of auto, but
I my ven diagram of automobile regulatory is

13
00:00:49.439 --> 00:00:52.920
somewhat limited. To help me understand
what's going on here, sir Lane,

14
00:00:52.920 --> 00:00:56.359
Well, the Federal Trade Commission,
which is the primary regulator for dealers.

15
00:00:57.159 --> 00:01:02.880
Last June, they proposed a trade
r elation rule and they are concerned about

16
00:01:03.159 --> 00:01:07.079
consumer protections. They believe a rule
that would impose new duties and restrictions on

17
00:01:07.239 --> 00:01:12.239
dealers would help to further protect consuwers. And we have been very critical of

18
00:01:12.280 --> 00:01:15.920
it for a number of reasons,
and maybe I can just take off a

19
00:01:15.000 --> 00:01:19.079
few of those for you. And
it really comes down to the process that

20
00:01:19.159 --> 00:01:25.920
the FTEC followed in developing this posed
rule, also the support for it.

21
00:01:26.319 --> 00:01:30.560
Both of these we think were extraordinarily
thin, and then of course it led

22
00:01:30.599 --> 00:01:34.840
to what we think are very poorly
thought out substantive provisions. So just to

23
00:01:34.920 --> 00:01:41.200
quickly hit on those from a process
standpoint, the FTEC was proposing a rule

24
00:01:41.319 --> 00:01:46.239
or has proposed a rule that is
nontracted by Congress, and they did not

25
00:01:46.400 --> 00:01:52.400
proceed the notice of proposed rulemaking with
any type of advanced issuance to inform themselves

26
00:01:52.480 --> 00:01:56.599
on the subject. So there was
no advanced notice of proposed rulemaking, no

27
00:01:56.680 --> 00:02:00.359
request for comment, no outline or
proposals for which they sought comment. There

28
00:02:00.439 --> 00:02:05.120
is nothing on the front end to
gather information to help inform the rule.

29
00:02:05.920 --> 00:02:10.520
In addition, when they put it
out, they also had very little coordination,

30
00:02:10.879 --> 00:02:15.400
certainly with industry. We meet with
FTC staff all the time, but

31
00:02:15.759 --> 00:02:21.000
these individual provisions they proposed were never
discussed, and we believe even with other

32
00:02:21.199 --> 00:02:24.039
agencies that have authority of this area. One area that they touched on have

33
00:02:24.120 --> 00:02:29.560
to be with credit disclosures and for
dealer purposes. That's really in the domain

34
00:02:29.639 --> 00:02:32.319
of the Federal Reserve Board, it's
not in the domain of the FTC.

35
00:02:32.800 --> 00:02:38.199
There was no apparent coordination there,
and they're applying this on top of a

36
00:02:38.360 --> 00:02:42.759
host of existing disclosures not just under
the Truth of Lending Act, but also

37
00:02:42.759 --> 00:02:46.960
at the state level. For example, California, they have a requirement that

38
00:02:46.000 --> 00:02:51.039
before you'd entered into a transaction you
would have to make all kinds of disclosures

39
00:02:51.039 --> 00:02:53.599
related to voluntary protection products, which
were a big focus of this rule.

40
00:02:54.280 --> 00:02:59.159
It's not clear that there was really
any meaningful coordination of the states on how

41
00:02:59.199 --> 00:03:01.879
this will affect them, because even
though preemption would apply with a direct conflict,

42
00:03:02.280 --> 00:03:05.599
in most cases, there's not going
to be a direct conflict. In

43
00:03:05.599 --> 00:03:08.039
other words, a regulated entity comply
with both the federal and the states the

44
00:03:08.159 --> 00:03:12.360
end. And you really got to
think through if you pile out a bunch

45
00:03:12.360 --> 00:03:15.039
of disclosures and other obligations, how
is that going to play out, So

46
00:03:15.120 --> 00:03:19.840
we believe the coordination was very thin, which was a problem. In addition,

47
00:03:20.319 --> 00:03:23.400
the comment period this was very rushed. It was only sixty days.

48
00:03:24.159 --> 00:03:30.000
Now the FTC will do a sixty
day comment period for much less consequential items.

49
00:03:30.000 --> 00:03:32.400
I mean, it might be like
the extension of a Paperwork Reduction Act

50
00:03:32.560 --> 00:03:37.159
request, which is only a couple
of pages in the Federal Register. This

51
00:03:37.240 --> 00:03:39.400
is a proposed rull cut out a
whole cloth. So they go ahead,

52
00:03:39.479 --> 00:03:43.840
they put that in there, we
have sixty days to respond. Naturally,

53
00:03:43.879 --> 00:03:47.199
we saw an extension, as did
many others, including SPA's Office of Advocacy,

54
00:03:47.800 --> 00:03:53.759
and to us inexplicably that was denied. It's also surprising because the proposed

55
00:03:53.840 --> 00:03:58.280
rule was accompanied with forty nine questions
and answers, or they were seeking answers

56
00:03:58.280 --> 00:04:01.000
to forty nine questions. Many of
these you would do on the front end

57
00:04:01.000 --> 00:04:04.400
to help inform the POSH rule.
It was surprising to see that they're in

58
00:04:04.439 --> 00:04:08.400
there. But they asked a lot
of questions about the impact on business and

59
00:04:08.400 --> 00:04:10.759
that type of thing, and we
wanted more time to be able to do

60
00:04:10.800 --> 00:04:15.079
an assessment. Unfortunately that was shut
off. Also, as I'll point out

61
00:04:15.120 --> 00:04:19.240
here, a moment. They propose
a number of disclosures consumer disclosures, and

62
00:04:19.399 --> 00:04:25.680
it appears there is no consumer testing
of those disclosures. And for any federal

63
00:04:25.720 --> 00:04:29.399
agency, that is a very basic
step. You want to make sure that

64
00:04:29.519 --> 00:04:32.720
if you're going to propose new disclosures
to help inform consumers, that they actually

65
00:04:32.800 --> 00:04:35.560
are going to serve their intended purpose, and you've got to look at what

66
00:04:35.680 --> 00:04:40.959
the effect on the consumers. So
it's very routine for these federal agencies to

67
00:04:41.000 --> 00:04:45.959
go ahead and test the effect of
any particular disclosure on consumers to see is

68
00:04:45.959 --> 00:04:49.240
this going to enhance their understanding or
detract from it. Unfortunately, that never

69
00:04:49.279 --> 00:04:53.680
happened, So a lot of steps
here were really short circuited. You know,

70
00:04:53.720 --> 00:04:58.199
one thing I would say really highlights
this. They did a purported cost

71
00:04:58.279 --> 00:05:01.639
benefit analysis of what this rule would
do in the market place. Obviously it's

72
00:05:01.639 --> 00:05:05.759
going to cost business money to sure, but they say it's also going to

73
00:05:05.839 --> 00:05:11.360
provide benefits to consumers. And the
figure they used was thirty one billion dollars

74
00:05:11.399 --> 00:05:14.920
over a ten year period. And
you might ask where they come up with

75
00:05:14.959 --> 00:05:16.920
that, and it is a too
complex for us to cover in a short

76
00:05:17.040 --> 00:05:21.000
podcast like this. Well, it
really is not because it was done in

77
00:05:21.040 --> 00:05:26.120
a very cursory fashion. They looked
at three variables. They said, this

78
00:05:26.199 --> 00:05:29.680
is going to save these disclosures and
everything else we're doing. It's going to

79
00:05:29.759 --> 00:05:33.360
save consumers three hours per transaction.
They assume that. They say that in

80
00:05:33.399 --> 00:05:38.839
the role and then those role making
that's based on nothing. There's no support

81
00:05:38.879 --> 00:05:41.519
for it. They just say it's
going to save three hours. They then

82
00:05:41.600 --> 00:05:45.240
come up with a value of someone's
non work time, so they multiply those

83
00:05:45.279 --> 00:05:49.480
two and then they multiply that by
the number of transactions that motor vehicle dealers

84
00:05:49.519 --> 00:05:54.480
do with consumers, and they used
a greatly inflated figure for that. You

85
00:05:54.560 --> 00:05:58.000
take us three variables, it comes
out to thirty one billion dollars. So

86
00:05:58.120 --> 00:06:02.240
it's that then it's that cursory really
not well thought out, and unfortunately that's

87
00:06:02.279 --> 00:06:06.439
really indicative of the whole exercise.
So on the process side, a lot

88
00:06:06.439 --> 00:06:10.959
of concerns and many that actually go
well beyond that. Can I can I

89
00:06:11.000 --> 00:06:14.480
ask a simple question here, how
does the addition of disclosure. Not that

90
00:06:14.519 --> 00:06:15.720
I want to bash the agency,
because you can do that, but I

91
00:06:16.079 --> 00:06:19.759
I want to stand at that business. But I'm curious how they're how does

92
00:06:19.839 --> 00:06:24.480
adding disclosures to a transaction reduce the
time of consumer spence? Like, what's

93
00:06:24.480 --> 00:06:28.079
the logic behind that? Well,
you would have to ask them the question

94
00:06:28.160 --> 00:06:30.160
because I certainly know see if it's
certainly not in this case when you consider

95
00:06:30.199 --> 00:06:32.279
the disclosure. I'll hit on those
in a little bit. But to your

96
00:06:32.639 --> 00:06:36.600
Yeah, to your point, I
think the only shaare estimation is that it

97
00:06:36.600 --> 00:06:40.959
would inject quite a bit more time
into it. When we talked about actually

98
00:06:41.000 --> 00:06:44.600
what the disclosures are so or no
more time and no more understanding, which

99
00:06:44.600 --> 00:06:46.000
is like I remember when I bought
my car. There's it's not a lot

100
00:06:46.040 --> 00:06:49.360
of paperwork. And I hate to
admit this on the podcast, I didn't

101
00:06:49.360 --> 00:06:53.680
read at all in great depth and
there were a number of disclosures that I

102
00:06:53.720 --> 00:06:57.319
definitely like put my John Hancock on
and said, this is just what you

103
00:06:57.399 --> 00:07:00.720
do right, well, mssive thing. Sometimes as a sem more disclosures are

104
00:07:00.759 --> 00:07:04.160
going to be more helpful to consumers, but that's why they consumer test and

105
00:07:04.199 --> 00:07:09.160
they find out that that's not always
the case. They lead there with a

106
00:07:09.199 --> 00:07:13.600
better understanding of the process, and
sometimes it requires more, sometimes it requires

107
00:07:13.639 --> 00:07:15.360
fewer. With much testom yeah,
and by the way, just one quick

108
00:07:15.399 --> 00:07:20.639
footnote on that the FTC knows how
to do this. The Bureau of Economics

109
00:07:20.800 --> 00:07:26.120
in two thousand and four was looking
at a HUD proposal in which they said

110
00:07:26.120 --> 00:07:30.199
that a mortgage broker of the compensation
they own, that is something that should

111
00:07:30.240 --> 00:07:33.240
be disclosed not just in a HUD
one, not just at closing, but

112
00:07:33.360 --> 00:07:40.120
during the shopping process. So they
did quantitative testing of over five hundred consumers

113
00:07:40.560 --> 00:07:43.639
and they found out that even though
it's very well intentioned, many of them

114
00:07:43.680 --> 00:07:46.959
were selecting more expensive mortgage products because
they were fixating out in this figure and

115
00:07:47.000 --> 00:07:50.319
not the overall fosting mortgage. So
they really said they should go back to

116
00:07:50.319 --> 00:07:53.680
the drawing board of it. And
that's why you do that type of thing.

117
00:07:53.720 --> 00:07:56.360
It's just for this reason you try
to figure out, yes, this

118
00:07:56.519 --> 00:07:59.000
is well intentioned, but is it
going to enhance hundred it does it really

119
00:07:59.000 --> 00:08:01.639
help the under lying without a doubt. Now, in terms of the support

120
00:08:01.720 --> 00:08:05.399
for the rule. That also,
and we've been very critical of this,

121
00:08:05.439 --> 00:08:07.240
and we could talk about that for
some time, but I'll just give you

122
00:08:07.240 --> 00:08:15.959
one quick example. They largely supported
their rule with and reference to qualitative testing.

123
00:08:16.040 --> 00:08:18.519
Consumer testing that was dotten, and
let me just tell you how thin

124
00:08:18.639 --> 00:08:24.759
this was. So in twenty seventeen, the FTC did qualitative testing of thirty

125
00:08:24.800 --> 00:08:30.720
eight consumers and a single market washing
DCU market nineteen that had bought new vehicles

126
00:08:30.800 --> 00:08:35.120
nineteen that had brought us and based
on that they came to some conclusions and

127
00:08:35.159 --> 00:08:39.759
they came out with a report in
twenty twenty which was a very large portion

128
00:08:39.879 --> 00:08:43.240
of what they pointed to and supported
this rule. Now, as many people

129
00:08:43.279 --> 00:08:48.120
know, qualitative testing is not quantitative
tests. Qualitative testing is usually used to

130
00:08:48.600 --> 00:08:54.799
develop quantitative testing. You measure prevalence
through quantitative testing, so to they skip

131
00:08:54.840 --> 00:08:58.840
that quantitative step and they use this
to help support the rule, and there

132
00:08:58.840 --> 00:09:01.279
were problems with it. B on
that the survey design plan for the qualitative

133
00:09:01.320 --> 00:09:05.559
testing had a lot of flaws in
it, and even more to the point,

134
00:09:05.679 --> 00:09:09.759
the report that came out in twenty
twenty on this qualitative testing, it

135
00:09:09.960 --> 00:09:16.039
stated that it is not suitable for
generalizable conclusions. And of course we know

136
00:09:16.080 --> 00:09:20.559
that our rulemaking is an exercise in
a generalizable conclusion, you're applying something to

137
00:09:20.600 --> 00:09:24.039
an entire marketplace. It's not targeted
at any one person. So real concerns

138
00:09:24.080 --> 00:09:28.559
with the support for the rule.
Now to your point about you know what's

139
00:09:28.600 --> 00:09:31.320
in it and is this actually going
to speed up or slow down the pins

140
00:09:31.399 --> 00:09:35.200
or what effect is it going to
have. Well, the rule does several

141
00:09:35.200 --> 00:09:39.879
things, very broad. I'll get
to the disclosure piece. But initially they

142
00:09:39.919 --> 00:09:45.320
said that they are going to prohibit
certain misrepresentations. Of course, misrepresentations are

143
00:09:45.320 --> 00:09:50.879
already prohibited. In doing this to
confer themselves confer upon themselves the ability to

144
00:09:50.960 --> 00:09:54.519
find a dealer over fifty thousand dollars
per violation, And the real concern here

145
00:09:54.600 --> 00:10:00.879
is the clarity with which they defined
the misrepresentations. Obviously there are certain things

146
00:10:00.919 --> 00:10:05.200
out there that should never happen and
should be penalized, but the way that

147
00:10:05.320 --> 00:10:09.639
many of these things are worded,
it's unclear what a regulated entity can or

148
00:10:09.679 --> 00:10:13.600
cannot do. And when you now
have fine authority of over fifty thousand dollars

149
00:10:13.720 --> 00:10:16.559
per violation, remember these are dealers, not banks, so the capacity to

150
00:10:16.600 --> 00:10:20.960
be able to a suit or absorb
these violations would be much more difficult.

151
00:10:22.440 --> 00:10:26.720
That is an issue. They also
prohibited the sale of valueless quote unquote add

152
00:10:26.759 --> 00:10:30.080
on products. Well, of course, no one should sell the valueless add

153
00:10:30.120 --> 00:10:33.440
on product but it's very poorly defined, particularly in areas like gapway. They

154
00:10:33.440 --> 00:10:39.320
have real concerns about the value that
the GAP product would provide to a consumer.

155
00:10:39.360 --> 00:10:41.440
Will, of course be extraordinary value. We've seen that mover and over,

156
00:10:41.799 --> 00:10:45.879
but the way they defined is a
big concern. So they've done that

157
00:10:45.919 --> 00:10:50.039
type of thing. They have new
advertising standards that would apply to dealers and

158
00:10:50.120 --> 00:10:52.840
only dealers, not other regulated entities. But then to the point that you

159
00:10:52.919 --> 00:11:00.639
have, which is disclosures, here's
what they've required to happen in any type

160
00:11:00.639 --> 00:11:05.440
of transaction. A few things they
say, any time a consumer inquires into

161
00:11:05.559 --> 00:11:09.840
a specific vehicle or from that matter, of monetary term or any financial obligation,

162
00:11:11.840 --> 00:11:15.559
upon the dealer's first response, the
dealer would have to provide the offered

163
00:11:15.679 --> 00:11:20.000
price. Now the offering price is
everything except for governmental feeds. Now you

164
00:11:20.080 --> 00:11:22.879
have to do that whether the inquiry
comes in writing words, comes in the

165
00:11:22.879 --> 00:11:26.519
world. So that means if I'm
a salesperson and you run into me at

166
00:11:26.559 --> 00:11:31.120
the Bowling Alley and you make an
inquiry into a specific vehicle, upon my

167
00:11:31.159 --> 00:11:33.440
first response, I have to provide
that information. It could be you're using

168
00:11:33.480 --> 00:11:37.320
the chat feature on our website.
It could be a text message you said

169
00:11:37.399 --> 00:11:41.480
you could be in the showroom.
It could come up from a variety of

170
00:11:41.519 --> 00:11:45.399
different ways, and when you think
about it, then the liability that attaches

171
00:11:45.440 --> 00:11:50.399
to these violations. Trying to make
sure that you're actually providing an offering price

172
00:11:50.440 --> 00:11:54.519
on the first response when this can
come up through so many different channels is

173
00:11:54.519 --> 00:11:56.879
a real concern, and one has
to wonder what's the value of you know,

174
00:11:58.000 --> 00:12:00.840
if you think about it the first
time, you and it's if I

175
00:12:00.879 --> 00:12:03.960
had to give the offering price,
I'm not going to know if you qualify

176
00:12:03.000 --> 00:12:07.480
for certain rebates. I'm not going
to know if other discounts are applicable,

177
00:12:07.720 --> 00:12:11.440
So I'm probably going to default to
something like the MSRP, which is higher

178
00:12:11.440 --> 00:12:13.000
than when you're going to end up
getting. So you'd have to ask what's

179
00:12:13.039 --> 00:12:16.240
the purpose of the disclosure if you're
going to have something more favorable. So

180
00:12:16.279 --> 00:12:20.440
they've done that. Certainly, having
to do those disclosures every time someone inquires

181
00:12:20.440 --> 00:12:24.320
into a specific vehicle and a customer
can ask about two, three, four

182
00:12:24.360 --> 00:12:28.840
or five vehicles really ties up the
process. But even more so, any

183
00:12:28.879 --> 00:12:33.639
time that a dealer would sell a
volunteer detection product, they would have to

184
00:12:33.679 --> 00:12:39.200
get from you up to four additional
written disclosures. So that is certainly a

185
00:12:39.279 --> 00:12:43.240
time consuming exercise, and there's other
concerns with it. I mean they use

186
00:12:45.000 --> 00:12:48.399
terms in there like cash price that
differ from the way it's to finding the

187
00:12:48.399 --> 00:12:50.720
truth of lending act. So there's
just some inherent confusion with it. We

188
00:12:50.840 --> 00:12:54.120
just don't think this was well thought
out. We think we would build a

189
00:12:54.159 --> 00:12:58.639
lot of time into the process.
They've also said with websites, a dealer

190
00:12:58.679 --> 00:13:03.759
would have to go ahead and identify
all of its voluntary protection products and the

191
00:13:03.840 --> 00:13:09.159
price associate. Now that might sound
benign, but consider how they define a

192
00:13:09.279 --> 00:13:13.039
voluntary protection product. It's really anything
that's not put on the vehicle or sold

193
00:13:13.039 --> 00:13:16.799
directly by manufacture. So when you
think about it, any part that comes

194
00:13:16.799 --> 00:13:20.840
with a vehicle is something that is
considered to be an add on product that

195
00:13:20.960 --> 00:13:26.480
you would have to separately disclose with
pricing. Now, dealers sell hundreds and

196
00:13:26.600 --> 00:13:31.759
hundreds of potential parts and accessories with
vehicles. This is a requirement that would

197
00:13:31.759 --> 00:13:35.919
require when you consider all the different
products they sell, probably over ten thousand

198
00:13:35.360 --> 00:13:39.720
separate line item disclosures with pricing,
and you have to ask yourself, is

199
00:13:39.720 --> 00:13:43.639
that enhancing consumer understanding. And if
what you're really trying to get to is

200
00:13:43.679 --> 00:13:48.200
like the price of a prepaid maintenance
plan or a gap waiver, is that

201
00:13:48.320 --> 00:13:52.799
going to be something that's salient and
available to a customer when you loaded up

202
00:13:52.879 --> 00:13:56.559
all these other disclosures. And the
other quick point on that is, if

203
00:13:56.559 --> 00:14:00.919
you're a manufacturer like Kessler Arivian,
even though you can be considered a motor

204
00:14:00.960 --> 00:14:05.879
vehicle dealer under this particular proposed rule, you would not be subject to that

205
00:14:05.919 --> 00:14:09.240
disclosure requirement because of the way they
define it. Add Up, you know

206
00:14:09.360 --> 00:14:11.919
you're the manufacturer, you'll quit in
the product on the vehicles selling it directly.

207
00:14:13.200 --> 00:14:16.679
So they say they want to level
the playing field between regulated entities,

208
00:14:16.679 --> 00:14:18.600
but here they've driven a wedge into
it. And the last quick thing to

209
00:14:18.639 --> 00:14:24.720
comment on is record keeping being would
require dealers to keep the slew of records

210
00:14:24.720 --> 00:14:28.879
from twenty five months, records of
all those communications I reference, among many

211
00:14:28.919 --> 00:14:31.840
other things. And that's unfortunate because
they say that they're really trying to protect

212
00:14:31.840 --> 00:14:35.960
the honest dealer. You know,
I'll tell you the FTC over the last

213
00:14:35.000 --> 00:14:41.759
ten years has taken thirty seven enforcement
actions against enforcement against auto dealers. There

214
00:14:41.799 --> 00:14:46.639
would be required here tens of thousands
of dealers to keep a huge cash of

215
00:14:46.759 --> 00:14:50.080
documents and the unlikely to bet that
there's an enforcement action when none of their

216
00:14:50.080 --> 00:14:54.559
current enforcement actions to our knowledge,
have suffered from a lack of documentation.

217
00:14:54.279 --> 00:14:58.840
So really, we think it's not
selting that's helping the honest dealer. It's

218
00:14:58.000 --> 00:15:01.080
hugely burning the on a stealer.
And if there were a good cost benefit

219
00:15:01.080 --> 00:15:05.039
analysis that would come out. So
a lot of concerns with it. Again,

220
00:15:05.279 --> 00:15:09.360
a poor process and very poor support, and we think it's supplant zomping

221
00:15:09.399 --> 00:15:11.159
that it's not gonna be help.
Yeah, I think your point of it

222
00:15:11.279 --> 00:15:13.159
is pretty clear on the Yeah,
yeah, you have and I have been

223
00:15:13.600 --> 00:15:18.120
shy. I'm curious when I hear
a story like that, and obviously I'm

224
00:15:18.120 --> 00:15:20.600
sure there's a different perspective on it
somewhere, But do you have an underlying

225
00:15:22.039 --> 00:15:24.960
sense of what's driving the agency to
move as quickly as they are towards something

226
00:15:26.039 --> 00:15:28.480
that is not like, what's the
driver for moving this thing through so quickly

227
00:15:28.559 --> 00:15:33.279
without some of the more traditional analyzes, cost benefit analysis, more rigorous quantitative

228
00:15:33.320 --> 00:15:37.679
studies, consumer testing, and disclosures. Is there a driver for why that's

229
00:15:37.679 --> 00:15:39.840
not being done anything in this case. Well, well, they have a

230
00:15:39.919 --> 00:15:45.360
very aggressive agenda. There's all kinds
of things that they have expressed concerns with

231
00:15:45.519 --> 00:15:50.919
and they launched rolemathe with for example, as you may have heard, non

232
00:15:50.000 --> 00:15:54.000
compete clauses, they proposed a role
to eliminate those, by the way,

233
00:15:54.080 --> 00:16:00.519
not just with existing employment contracts,
but future ones. And there's a notification

234
00:16:00.559 --> 00:16:03.559
requirement. So they're they're very disposed
to try to go after a lot of

235
00:16:03.639 --> 00:16:08.960
phase through the rulemaking process, and
here they feel that they need to address

236
00:16:10.039 --> 00:16:12.840
concerners in the marketplace. You know, it's odd to us because none of

237
00:16:12.879 --> 00:16:18.080
the things that are addressing lack of
remedies today if there's some type of abuse,

238
00:16:18.440 --> 00:16:19.919
so they really do not have to
plug in the type of down.

239
00:16:21.440 --> 00:16:25.039
So we think it's definitely overkill.
We don't think it's wealth n out and

240
00:16:25.200 --> 00:16:27.120
we think if they did go through
that more deliberate process, they would find

241
00:16:27.240 --> 00:16:32.120
and see any of the things they
propose really or not. Let's shift a

242
00:16:32.159 --> 00:16:36.720
little bit from rulemaking such an exciting
I think, to enforced MAXs because there's

243
00:16:36.720 --> 00:16:40.840
been a number of enforcement actions or
lawsuits from Attorney's General in the auto auto

244
00:16:40.919 --> 00:16:44.840
dealer auto finance space recently, what's
your take on what's going on out there,

245
00:16:44.919 --> 00:16:47.399
Like, I mean, you could
go to specifics or just generally like

246
00:16:47.759 --> 00:16:49.399
what's what what are the kind of
trends that you're seeing, because it's been

247
00:16:49.440 --> 00:16:52.320
like I feel like I open up
the paper and every now and then I'm

248
00:16:52.600 --> 00:16:56.320
reading more frequents out of headlines in
the space than typical. Sure, yeah,

249
00:16:56.440 --> 00:17:00.799
certainly. Well, the FTC has
one area they're very concerned about is

250
00:17:02.000 --> 00:17:07.279
exercise a pricing discretion, And certainly
pricing discretion does have to be managed.

251
00:17:07.400 --> 00:17:10.839
You want to make sure it's not
done an arbitrary fashion or something that could

252
00:17:10.920 --> 00:17:15.160
lead to discrimination. So that concerned
is certainly a genuine concern, although the

253
00:17:15.319 --> 00:17:18.079
measures they've taken to address it,
we think are also poorly thought out.

254
00:17:18.519 --> 00:17:22.799
But really you see anyse enforcement actions
that there is concerned about price and discretion.

255
00:17:23.559 --> 00:17:26.839
And one of the actions last year
was always a year ago, it

256
00:17:26.920 --> 00:17:32.400
was against a large dealer group.
They had stated that they're looking not just

257
00:17:32.599 --> 00:17:37.400
at pricing discretion as relates to a
dealer participation, to the dealers the dealer's

258
00:17:37.400 --> 00:17:40.839
portion of the finance. Yet also
they're looking at other products that were sold,

259
00:17:40.880 --> 00:17:42.839
you know, some of these voluntary
protection products. Yeah, that's not

260
00:17:42.920 --> 00:17:47.160
something we're aware of having happened.
So they are applying it to that.

261
00:17:47.880 --> 00:17:51.799
They did that again in a two
in another action, or they look beyond

262
00:17:52.079 --> 00:17:57.599
simply credit. It is beyond simply
dealer participation. And also the Massachusetts Attorney

263
00:17:57.680 --> 00:18:03.400
General under state law actually just took
an action this year that involved voluntary protection

264
00:18:03.440 --> 00:18:07.880
products based on the violation and state
law. They had looked at whether or

265
00:18:07.880 --> 00:18:10.960
not the pricing was done fairal and
so there's a lot of focus on the

266
00:18:11.039 --> 00:18:14.559
exercise of price and discretion. Yep. Certainly a lot of focus on voluntary

267
00:18:14.599 --> 00:18:18.240
protection products as it relates to things
like disclosures and consuer consent, those type

268
00:18:18.240 --> 00:18:22.119
of issues. They've been very focused
on that. Another thing the FDC also

269
00:18:22.240 --> 00:18:26.880
has done is they have improsed individual
liability and a number of these cases really

270
00:18:27.000 --> 00:18:30.519
so it's not just against the corporate
entity. In that case, from about

271
00:18:30.559 --> 00:18:34.240
a year ago, they took action
against the general manager of two of the

272
00:18:34.359 --> 00:18:38.039
stores of the Stealership group. That
was an addition to the corporate entity.

273
00:18:38.160 --> 00:18:41.559
And then in October they actually took
the action against the owner of the dealership

274
00:18:41.599 --> 00:18:45.039
group as well as the vice president. So that's a trend that I think

275
00:18:45.079 --> 00:18:49.319
will continue to see. Are you
seeing I know that there's this interesting the

276
00:18:49.359 --> 00:18:55.359
ecotomy between the regulations that apply to
the dealer in terms of the finances financing

277
00:18:55.359 --> 00:18:57.799
of the vehicle, and then the
regulations that apply to the entity. Often

278
00:18:57.839 --> 00:19:02.480
a bank that ends up purchasing and
owning that contract with the longer term,

279
00:19:02.599 --> 00:19:07.079
right, it's usually the risk that's
originated the dealer then purchased by a bank

280
00:19:07.160 --> 00:19:10.559
that has maybe a different set of
fair lending standards. Testing that's being done,

281
00:19:11.119 --> 00:19:14.920
and I'm curious if you're seeing as
these things happened, any reaction from

282
00:19:14.920 --> 00:19:17.920
the lender side in terms of their
comfort working with dealers, how they're thinking

283
00:19:17.920 --> 00:19:21.839
about managing the risks that they have
on their side of the house. As

284
00:19:21.920 --> 00:19:25.039
these kinds of questions are being raised, I think it's it changes the dynamic

285
00:19:25.119 --> 00:19:27.440
a little bit. Is a great
question to most of the federal laws that

286
00:19:27.480 --> 00:19:30.559
are out there are applicable to both
end. So the dealer is the initial

287
00:19:30.599 --> 00:19:34.079
creditor and then the bank ask the
creditors. So Truth in Lending an Act

288
00:19:34.400 --> 00:19:38.839
and Federal Consumer Releasing dutt Ram Leach
Bliley. We could go right down a

289
00:19:38.880 --> 00:19:42.599
lot. These are things that apply
to both, although the liability standards can

290
00:19:42.680 --> 00:19:48.079
different. And also there is this
FTC holder rule, so that somebody holds

291
00:19:48.119 --> 00:19:52.680
a contract would be subject to the
same claims and defenses that we're initially if

292
00:19:52.720 --> 00:19:56.480
they pull against a dealer. So
they do sometimes look at that from different

293
00:19:56.519 --> 00:20:00.759
ways. But in terms of ways
to mitigate views concerns, you know,

294
00:20:00.880 --> 00:20:04.079
we have come out with a program. It's an optional program because it gets

295
00:20:04.079 --> 00:20:07.920
into pricing, but it's based on
DJ can set orders on this whole issue

296
00:20:07.960 --> 00:20:12.400
of pricing discretion, one that pertains
to deal with participation, a protus of

297
00:20:12.440 --> 00:20:17.400
volunteary of auditorcract fox, and those
are ones that we believe can be very

298
00:20:17.480 --> 00:20:22.000
helpful and actually they've been referenced many
times. So for example that actually the

299
00:20:22.160 --> 00:20:26.319
FTC took against the Dealership group a
year ago, they actually said them on

300
00:20:26.400 --> 00:20:30.759
a go forward basis, if the
dealership is going to dealer anticipation that they

301
00:20:30.759 --> 00:20:33.920
would need to adopt a program that's
similar to the optional program that we developed

302
00:20:34.000 --> 00:20:40.039
that's modeled on that DOJ approach.
And then even in October, the dealership

303
00:20:40.079 --> 00:20:44.039
had actually adopted that program, but
they said they did not properly implement it,

304
00:20:44.119 --> 00:20:45.960
so they did not make that an
option of vailable tale. So there's

305
00:20:45.960 --> 00:20:51.839
definitely been a focus on those types
of mechanisms. And then the Massachusetts ag

306
00:20:52.039 --> 00:20:56.880
action with regard to our Voluntary Protection
Products program stated that on a go forward

307
00:20:56.960 --> 00:21:02.000
basis, the dealership would go ahead
and to adopt that program by name to

308
00:21:02.119 --> 00:21:06.400
help mitigate concerns about the exercise of
pricing discression. And we have found that

309
00:21:06.480 --> 00:21:10.039
many banks find a lot of appeal
on They think, yeah, I know,

310
00:21:10.160 --> 00:21:14.799
if you if you have something that's
allowing consumers to benefit from appropriate discount

311
00:21:14.799 --> 00:21:18.799
it's not based on a prohibited basis, but otherwise is kind of standardizing the

312
00:21:18.880 --> 00:21:22.680
process, making sure there's more consistency. It's a good way to keep competition

313
00:21:22.720 --> 00:21:26.720
in the marketplace alive, make sure
it's based on appropriate factors, and otherwise

314
00:21:27.079 --> 00:21:33.720
kind of smooth out what otherwise could
be differences in price. Got it interesting?

315
00:21:33.839 --> 00:21:36.839
Any of the other recent enforcement actions
come to mind when you think,

316
00:21:36.839 --> 00:21:40.799
you mean, there's also the case
in New York wisident here is one against

317
00:21:40.839 --> 00:21:42.839
a credit acceptance corps. Yeah,
correct, Now, that's not against dealers.

318
00:21:44.079 --> 00:21:48.119
They certainly referencedealers, but dealers are
the dealer against I think that one's

319
00:21:48.119 --> 00:21:51.880
an internest with the pricing discussion and
who's getting out ultimately liability for her right.

320
00:21:52.079 --> 00:21:52.720
They do take a look at that. Now. Of course, that's

321
00:21:52.720 --> 00:21:56.599
a little different from some of the
other things we've talked about because that actually

322
00:21:56.920 --> 00:22:00.759
is not a consent order. That's
a lawsuit. Yeah, front of acceptance

323
00:22:00.960 --> 00:22:03.519
is responding to that. That will
be sett them in court, So we'll

324
00:22:03.519 --> 00:22:07.599
see where that goes. Those other
ones are all consent orders, so well

325
00:22:07.680 --> 00:22:10.880
they did. Yeah, I'd prefer
consentator, I think, to being sued

326
00:22:10.880 --> 00:22:12.799
by a sturning gen on. I'm
sure we're none of the sound like fun

327
00:22:12.839 --> 00:22:18.000
experience is to be honest, Um, there are state level regulatory Actually we

328
00:22:18.000 --> 00:22:21.920
talk about about the FTC, But
what's happening the state level from a regulatory

329
00:22:22.000 --> 00:22:25.119
actions rule making point of view other
than the enforcement actions? Are there other

330
00:22:25.519 --> 00:22:27.160
other trends? Are things you're saying
going on that are impacting the space?

331
00:22:27.680 --> 00:22:32.400
Well, certainly a number of states
very active. We've we've certainly seen that

332
00:22:32.480 --> 00:22:36.039
with things like gap waver, California's
hats in legislation. But I think it

333
00:22:36.079 --> 00:22:37.960
doesn't underscore a point. And this
is something by the way on that FTC

334
00:22:38.119 --> 00:22:41.839
where we follow very extensive comments,
so anyone that wants more detail on that

335
00:22:41.880 --> 00:22:45.759
can look at that. But really, the States really do have a and

336
00:22:45.880 --> 00:22:52.240
it differs from location location, and
they really have a very robust regime of

337
00:22:52.759 --> 00:22:56.559
harments that apply to bolitary protection roducts
to the sales process channel into things like

338
00:22:56.720 --> 00:23:00.519
gaff wave and those really are place
and we do see activity with that,

339
00:23:00.680 --> 00:23:06.359
so that trend is still there that
tends to pick up generally speaking, and

340
00:23:06.559 --> 00:23:10.880
certainly there has been some enforcement theres
SEA. I would love to get your

341
00:23:10.920 --> 00:23:14.240
take on. Most of the listeners
podcasts are in the on the banking side

342
00:23:14.279 --> 00:23:15.240
of the house, on the dealers
side of how I'm sure there's a few

343
00:23:15.240 --> 00:23:18.680
dealers who popped in now and then. But when you think about, you

344
00:23:18.759 --> 00:23:22.799
know, the totality of what we've
been talking about and how that impacts how

345
00:23:22.079 --> 00:23:26.680
banks should be thinking about their relationships
with dealers, their relationships to the audit

346
00:23:26.799 --> 00:23:30.119
finance side. What should they be
thinking about keeping their eye on over the

347
00:23:30.200 --> 00:23:32.440
next couple of months, for the
next year or two as they're thinking about

348
00:23:32.680 --> 00:23:36.160
how do I support my local dealers, but also manage my risk as a

349
00:23:36.559 --> 00:23:38.720
related party, but to but not
directly and the dealers. Just a great

350
00:23:40.160 --> 00:23:44.039
question, and I think you know
some of the areas that are really very

351
00:23:44.079 --> 00:23:47.359
important. I think we've touched on, certainly the exercise of price and discrection

352
00:23:47.880 --> 00:23:52.079
to really engage the dealer to make
sure that that is something where the way

353
00:23:52.119 --> 00:23:56.359
it's being applied is structure and there
is any approach to it that is going

354
00:23:56.400 --> 00:24:00.480
to protect the consumer, the dealer
and the bank. Of course that's important.

355
00:24:00.640 --> 00:24:03.640
And then things like gapwaver refunds,
there's been a lot of discussion on

356
00:24:03.720 --> 00:24:07.359
that. That's really something that you
can have multiple entities involved in the process.

357
00:24:07.440 --> 00:24:11.319
You certainly have the bank that is
servicing the agreement, so if you

358
00:24:11.400 --> 00:24:15.960
do have something like a default or
repossession a pre payment, that's something where

359
00:24:17.000 --> 00:24:19.799
the bank first learns about it.
But there's other circumstances where something can be

360
00:24:19.960 --> 00:24:25.759
canceled, and it really requires good
communication between the dealer, the bank,

361
00:24:26.000 --> 00:24:30.200
and oftentimes the program administrator take their
product and doing that to try to make

362
00:24:30.240 --> 00:24:37.039
sure that the consumers may hold that
any refund rights are actually exercised and fulfilled,

363
00:24:37.160 --> 00:24:40.720
any obligations are met. Is very
important. So those are two of

364
00:24:40.720 --> 00:24:44.519
the areas that we've think a tricklo
sale. All right, and then I'll

365
00:24:44.559 --> 00:24:47.519
ask you one more question, which
is I'm kind of curious to talk a

366
00:24:47.559 --> 00:24:49.359
lot about things that are going on
that are you know, we don't like,

367
00:24:49.839 --> 00:24:52.400
or rules we think or learners.
But I want to give a chance

368
00:24:52.400 --> 00:24:55.960
to switch to the positive sign Like
what are the you know, is the

369
00:24:56.000 --> 00:24:59.160
association of auto dealers, Like what
are the trends you're saying that are positive?

370
00:24:59.160 --> 00:25:02.680
That like changes the market that are
they're positive the consumer, positive dealers,

371
00:25:02.720 --> 00:25:04.559
things that are like where's the future
headed, not just on the regulatory

372
00:25:04.599 --> 00:25:07.000
side, but in general for the
space, because it feels like actually a

373
00:25:07.079 --> 00:25:11.440
quite exciting time. It'd been a
very weird time over the last couple of

374
00:25:11.480 --> 00:25:14.440
years, like lack of inventory and
like, you know, a lot of

375
00:25:14.480 --> 00:25:18.480
dealers struggling with just you know,
too many salespeople and not tough cars to

376
00:25:18.559 --> 00:25:21.839
sell, not because they didn't just
couldn't could get them. And I feel

377
00:25:21.880 --> 00:25:23.839
like that, combined with digitization,
it's a really fascinating time for the space

378
00:25:23.880 --> 00:25:26.680
in terms of how the car buying
experience is going to ship. Give me

379
00:25:26.759 --> 00:25:30.200
a let's let's end on a more
positive struct You're like, what are what

380
00:25:30.279 --> 00:25:33.359
are the positive trens you're seeing on
the space? No other great question.

381
00:25:33.359 --> 00:25:36.359
I mean there they're certain there are
many positive trends we are seeing. Just

382
00:25:36.480 --> 00:25:40.920
in terms of online impeachment with consumers. What are you're seeing as consumers get

383
00:25:41.039 --> 00:25:45.839
more and more comfortable with shopping and
learning about products and they're online, the

384
00:25:45.920 --> 00:25:49.680
ability to provide all the information clear
disclosures kind of give them all a good

385
00:25:49.680 --> 00:25:53.519
snapshot of what it's going back,
it's stronger role time and that's a great

386
00:25:53.559 --> 00:25:57.680
process. More broadly, when you
look at kind of a trend with evs

387
00:25:59.400 --> 00:26:00.559
and that type of thing, I
mean, that's something that dealers have been

388
00:26:00.680 --> 00:26:06.759
very supportive of as considered demand for
evs goes up, so certainly they are

389
00:26:07.319 --> 00:26:10.960
working with the factories to try to
make sure that that demand doesn't mean as

390
00:26:11.079 --> 00:26:15.599
for inventory and the supply chain of
disruptions and some of those challenges. Yes,

391
00:26:15.799 --> 00:26:18.599
that's you know, trying to make
sure that you can meet considered demand,

392
00:26:18.680 --> 00:26:23.559
and there are expectations that regard.
That is kind of an evolving situation,

393
00:26:23.720 --> 00:26:29.680
but there seems to be a little
bit easy with that where in terms

394
00:26:29.720 --> 00:26:33.480
of you know, some of the
supply chain shortages that had before haven't proved.

395
00:26:33.599 --> 00:26:36.680
It's not something that happens overnight,
but I think we're certainly seeing that.

396
00:26:37.079 --> 00:26:38.480
And as for the transitions to EV
as, a lot's going on.

397
00:26:38.599 --> 00:26:44.200
The factories are certainly trying to build
more evs and the fleet. They're trying

398
00:26:44.200 --> 00:26:47.960
to get more of a charging infrastructure
in place, and different factories are going

399
00:26:48.000 --> 00:26:51.240
about the different ways, but certainly
dealers have been at the forefront of trying

400
00:26:51.279 --> 00:26:52.920
to make sure that happens. You
know, one thing we've always stressed our

401
00:26:53.079 --> 00:26:59.519
dealers are indispensable to that process because
at the moment, the EV purchasers tend

402
00:26:59.559 --> 00:27:03.079
to be in your more urban areas. It's ones where the income level might

403
00:27:03.119 --> 00:27:07.119
be much higher. But when you
talk about a fleet that's vainly if not

404
00:27:07.319 --> 00:27:11.160
exclusively uvs, then you're talking about
past market penetration and trying to make sure

405
00:27:11.279 --> 00:27:18.799
that consumers understand us there are concerns
about range anxiety are addressed and actually you

406
00:27:18.880 --> 00:27:22.519
can sell them they understand the benefits
tone Doing all those things can be a

407
00:27:22.599 --> 00:27:26.720
real challenge, and having in our
case a network of over sixteen thousand franchise

408
00:27:26.799 --> 00:27:30.839
dealers in the local communities to kind
of guide them through that process is supported,

409
00:27:32.240 --> 00:27:34.839
we think is indispensable, and so
we're excited about that prospect and we

410
00:27:34.920 --> 00:27:38.799
think experience us excellent. Well,
Paul, thanks for taking the time and

411
00:27:38.839 --> 00:27:41.799
join us today. It was a
lot to cover. I learned a lot,

412
00:27:41.839 --> 00:27:45.279
I'm sure the audiences well. I
appreciate you making the time and sharing

413
00:27:45.319 --> 00:27:48.319
your perspective. Thank you so much. Plugging with you help Start partners with

414
00:27:48.480 --> 00:27:53.079
banks and credit unions to help grow
their consumer loan portfolios and deliver a modern

415
00:27:53.279 --> 00:27:59.640
all digital lending experience. As the
average consumer becomes more digitally savvy, it

416
00:28:00.200 --> 00:28:04.640
make sense that their bank does too. Upstarts AI lending platform uses sophisticated machine

417
00:28:04.720 --> 00:28:11.680
learning models to more accurately identify risk
and approve more applicants than traditional credit models.

418
00:28:11.920 --> 00:28:17.680
With fraud rates near zero, upstarts
all digital experience reduces manual processing for

419
00:28:17.799 --> 00:28:22.039
banks and offers a simple and convenient
experience for consumers. Whether you're looking to

420
00:28:22.160 --> 00:28:27.039
grow and enhance your existing personal and
auto lenning programs or you're just getting started,

421
00:28:27.480 --> 00:28:32.720
Upstart can help. Upstart offers an
end to end solution that can help

422
00:28:32.799 --> 00:28:37.720
you find more credit worthy borrowers within
your risk profile. With all digital underwriting,

423
00:28:37.960 --> 00:28:41.680
onboarding, loan closing, and servicing, It's all possible with Upstart in

424
00:28:41.759 --> 00:28:47.920
your quarter. Learn more about finding
new borrowers, enhancing your credit decisioning process,

425
00:28:48.240 --> 00:28:52.720
and growing your business by visiting upstart
dot com slash four dash banks.

426
00:28:52.000 --> 00:28:57.279
That's upstart dot com slash four dash
banks. You've been listening to leaders and

427
00:28:57.400 --> 00:29:02.720
lending from Upstart. Make sure you
never missed an episode. Subscribe to Leaders

428
00:29:02.759 --> 00:29:06.640
and Lending in your favorite podcast player
using Apple Podcasts. Leave us a quick

429
00:29:06.720 --> 00:29:08.920
rating by tapping the number of stars
you think the show deserves. Thanks for

430
00:29:10.039 --> 00:29:11.519
listening, until next time.