BHPH Report March 2014 : Page 1
AutoStar Solutions Acquisition Helps to Develop New Compliance Technology for BHPH Dealers J.D. Byrider Adds 7 Franchised Locations A Publication of NABD and SubPrime Auto Finance News 5 8 Who’s Most Likely to Spend Tax Refund on Car? 9 March 2014 | Volume 1 | No. 3 Insolvency Exception Could Help Form 1099-C Recipients By Nick Zulovich, Editor NIADA Makes Position Known Comments Arrive as CFPB Considers Debt Collection Rules ARLINGTON, Texas — e Na-tional Independent Automobile Deal-ers Association made sure to cra a de-FORM 1099-C continued on page 8 tailed response when the Consumer Fi-nancial Protection Bureau allowed time for comments regarding possible chang-BHPH Report’s Form 1099-C Series es to federal rules governing debt collec-Future issues will tackle other elements so tion. Regulators operators can handle the responsibilities of sought the input these Internal Revenue Service mandates, as they consid-including: er the option of 13 changing rules 9 5 4 • Compliance issues 9 6 that enforce the the Rise to consider IRS Audits of Operators on Protocol Fair Debt Col-1099-C Form 1099-C Ignoring Form Understand to Vital Filing Can Become • Recent IRS audit positions Costly in a Hurry lection Practic-• Defense considerations es Act. • Customer insolvency NIADA reg-SHAUN PETERSEN ulatory coun-• Differences between state Importance Successful Operators Stress NIADA sel Shaun Peters-Plan Business and federal rules of Creating & Maintaining en expressed the association’s opposition First two installments can to rules designed to regulate creditors award-s J.D. Byrider’ winning dealerships be found in the January & such as buy-here, pay-here dealers in the February issue of the same way as third-party collectors. Pe-BHPH Report tersen noted that when Congress passed 11 2013 Is in the Rearview Mirror, So What’s Ahead? Department of What Are You Doing Justice Sues Today To Bring Your Ramping Up Compliance Carolina Is North NABD Two Back? BHPH? Here & Customers Considering Discussion for Academy BHPH Dealers a Starting Point or Two National Conference Learn From Your Year-End Losses, January 2014 Don’t Repeat Them | Volume 1 | No. 1 A Publication of NABD and SubPrime Auto Finance News February 2014 | Volume 1 | No. 2 HOUSTON and RALEIGH, N.C. — Working with customer disputes isn’t an unfamiliar situation to most buy-here, pay-here operators. Dealers have become accustomed to smoothing out situations about repairs, payments and a host of other issues. Another customer concern happening more o en stems from individuals who had their vehicle repos-sessed and the loan balance forgiven (or discharged under state law). at process forces operators by fed-eral law to le with the IRS and send to the borrow-er Form 1099-C showing that the discharged balance is considered income potentially subject to tax. ese customers are noti ed by the Form 1099-C that they may have a signi cant tax liability when they le their individual return, despite losing ownership of their car. However, there is an IRS form that may brighten the day for both the upset customer and the BHPH op-erator — Form 982 titled, “Reduction of Tax Attributes Due to Discharge of Indebtedness.” If the customer is insolvent immediately before the debt is cancelled and the car is repossessed, the amount reported on the Form 1099-C is not taxable. For this purpose, a cus-tomer is insolvent if all of his/her liabilities were more than the value of all assets (including the repossessed car) immediately before the debt was cancelled. Ken Shilson, founder of the National Alliance of Buy-Here, Pay-Here Dealers who spent decades as a practicing certi ed public accountant, recently men-tioned Form 982 to some veteran operators who were unaware of the potential impact of customers utiliz-ing this process. By Nick Zulovich, Editor BHPH Buzz: Perceived Rise in Voluntary Repossession Sparks Operators’ Concerns A Publication of NABD and SubPrime Auto Finance News By Nick Zulovich, Editor By Nick Zulovich, Editor PARK, Editor OVERLAND Zulovich, By annual-Daughtry, NCM Associates 60 meetings to Nick By Gene Associates attends close N.C. — HOUSTON and RALEIGH, of Service appears Kan. — Brent Carmichael The Internal Revenue within the to be increasing audit efforts NCM buy-here, Groups of Buy-Here, probably And one partic-N.C. — You industry. country with 20 of RALEIGH, used-vehicle Alliance ly throughout the include HOUSTON often and the important for about HOUSTON — The National meeting agendas joke is especially hour as well element ular pay-here dealers. While operators in-cocktail that running veteran Carmichael under-have heard Dealers is giving compliance, Pay-Here and taxes. pay-here dealers to — death buy-here, discussions about regulatory by learning in life oper-2014 things BHPH begin sure to prompting is two who want topic during the again 1099-C. professionals up Form as another specific stand: dicated starter came ben-elements all will chuckle see that that to delv-Well answers chance Before find the Scott other to industry on each about lean the more ators to conversation with McGladrey’s buy-ing too heavily the multi-store, Report’s well as as BHPH dealer action. it is for gravel-lot in single operation thriving efit a the of discussed Jan. 11 how important for is set he Ruby when into this wide-next BHPH Boot Camp have a related fi nance multi-state NABD’s company. top-Attend-who ranging here, Charlotte. operators of pay-here just east 1099-C as dictated by Internal ic, two account-3 Form and 12 in Monroe, N.C., page le fi on to continued company BUZZ years ago. guidelines revamped nine ees will have the ing experts in-Revenue Service operation all part of the BHPH there are only two things dicated opera-knowledge, my opportunity to examine “To One Ingram Walters, of I’m in who nite statute of limitations. “When tors need to un-that have an indefi with failure to fi le a tax has been associated and the second is the derstand one im-is murder, dealerships inception fi led Form 1099-since its NABD said. “If you have not portant point. If form,” Ruby running his forever so the IRS right been store has and open BHPH is the doing statute C, your and assess 2005 for more Ruby back to Scott own has a related fi-can audit all the way now dealerships consulting McGladrey years. ” nance compa-than penalties. you 20 is not intentional, with missed fi ling along about to file these IRS forms that the Walters Assuming ny, the potential a borrow-Ken for failing to provide $100 penalty be necessary. NABD or there is a founder might collections January and a sep-itself collects the by the end of use the 1099-C dealership a Form to “If the for Shilson er with intend failing to is required. But of dealership the one 1099-C against every sales, Form penalty no to outline $100 paper, days arate two Ruby empha-structure is that the by common cre-end of February. IRS we to the the the more it takes fi le with that things step is po-the but there quickly, add up car sells the paper to their re-can re-dealership penalties a sized establishing from that that struc-initial deadlines. BHPH store, those audit do we ate a successful finance company, and in is tential if operators lated relief under-missed aside just for this part have occurred events take a look at compliance, do does have to triggering that regulatory for 2013 related fi l-eight fi rst we going to put the deadline large of put-missed er establishing lated finance company, ture the finance company aft we “If you’ve will and that that two years that be-dissected. business? Instead of just require-examinations and levy potential important McGladrey to finding inventory ve-of the are still with their charge-offs, the Form 1099-C of collections considerations comply some with less than 10 on the cars over there that we trad-By Nick Zulovich, Editor writing and ings, your time to here is that, BHPH operation few are lower if the a tax director at fines for failure to comply. go Th e penalties “The importance ting a in his Chrys-the notes busi-ment,” said Scott Ruby, quickly. and I read cause chose to sell tax overlooked thing Powell that we’re go-penalties increase. turn back return for every it’s at “What was an for the accounting go buy-here, hicles, now ed for, what is a set amount federal income nationwide a 1, session. Register Aug. 1. Aft er Aug. BHPH Okla. — Th e of regulations VINITA, the of a company and delve into the owner going to be our Space is limited for this happened.” late fi lings are made before McGladrey, franchise past because past ” he said. start-ler burner, 1099-C, what ing to draw from? What’s ” ness, an officer or Form see to missed per bhphinfo.com. operation Dustin Kerr firm. back to the front return must indicate capital? least a $200 penalty boot camp by visiting of indus-has been moved space exclusively. decades pay-here increase who signs the tax on sub-operating “penalties 2006 And based for owner Bill Powell 10 all of the plan another lot in have filed ed to oversee He went on to explain that Th e pair opened Shilson added. there, your business Intentional deal-or confirm that they by Ken Shilson, presi-followed many “From Associates intentional. 25 is pattern NCM interaction a le fi are try to about ago years Brent Carmichael, in Miami, Okla., of Buy-stantially if the failure continued. “Th is Forms 1099. The returns Alliance always the is National BHPH store that’s now necessary fi the starts to of ere It’s evolve,” he dent Th all the facts. store. Th en rst penalties of perjury. the of recognize. Th e ers might disregard is based upon what’s our av-Dire away from under the majority and miles signed Dealers, of a Chrysler Behavior is our starting capital so Here, Pay-Here on two understand Past fold off -shoot page 8 as an into the people that finance started our re-lot came a related important FORM 1099-C continued another real to going to be? What’s BHPH dealerships have erage ACV — a place where when be confusing, to be had can which franchised dealership business to how rules, plan Consequences these and try years later, the ” to be? Th at leads you going company. comply, con is situat-failing to for could send older trade-ins because it Kerr States a month, in the United avoid penalties ned even further “Most dealers cars are you going to sell Series cautioned a piece of property refi 1099-C have them on Th at third location is many to retail state. said. Both Ruby and Shilson ed in another Ruby considered significant portfolio hadn’t BHPH Report’s Form you have a so that things that sure those been of a are held. might not have other elements “You also want to make all already company. There operators who Pittsburg, Kan. we in Future issues will tackle a related finance if they “When required before. 1099-C the much to provide each Forms stop along not issuing growth you’re responsibilities of the vast majority do,’” aware that they were is a dol-reason got start-(and During sat down, and said this operators can handle the few that don’t, but no other “We fi rst to file the are not opera-of for required director if, customers way, mandates, said. Kerr has been the Forms 1099-C to be that we’re going to devote just Shilson put didn’t 1099 is going ed, we these Internal Revenue Service lar fi gure IRS audit ac-an unnecessary working close-even if a voluntary the IRS) Car Credit, E-Z than for “There is considerable Here’s our av-forms with cause tions and may of thought of oc-confusing a ton a indus-going debt oc to a customer to this part of the business. used-car including: 9 or charge-off Powell to keep the things 5 tivity right now in the 4 many cars we repossession the dealership ” Kerr ly with into it, that conflict or angst between revisit-erage ACV, and this is how IRS for whatev-IRS takes the it position than to their plan, which is don’t try,” he continued. “The upset any sell Rise according want can • Compliance issues on the Form curred. The a month. We can’t sell more the said. “Once is required if one year. customer. You what to bring decided Audits of Operators Protocol IRS reporting er reason has per and Kerr recollected Form 1099-C say. “We just grew to your show-Form 1099-C to consider might Vital to Understand picked up, we ed twice who getting this,” Kerr went on to people question into IRS audit aft er return like issuance was 1099-C meeting rst fi ” that positions there. back from had to step organically • Recent IRS audit room,” he continued. send-to grow, Brett Carmichael, BHPH business. also emphasized that In order Shilson and say, ‘Hey, into the over • Defense considerations fi ve or six cars that any size forms unnecessar-“We just stuck 1099-C 1099-C Series NCM Associates, insisted ing Form this needs a little what we on of • Customer insolvency a sharp even know an oper-BHPH Report’s Form strain BHPH can handle the and didn’t even more operator needs to have KERR so operators ily puts more attention. there elements just DUSTIN other “We were with time said. his • Differences between state Kerr ” During contending is including: know, place. Future issues will tackle in mandates, Credit Service to get a didn’t ator who already on them business plan E-Z Car We need Revenue and federal rules to put a down payment IRS continued 6 leader, Carmichael noted on page group responsibilities of these Internal how we’re going to do going that started as a 20 — large place as to insolvency Learn more about J.D. Byrider’s plan in and fi nance them. Once • Customer that he’s seen plenty of operators award-issues to consider J.D. Byrider’s it’s doing well.’” and federal rules quick, we sat down • Compliance dealerships this because outstanding 2013 dealership bhphreport.com 1 winning on page 4 • Differences between state sharpen picking up pretty First installment can be BUSINESS PLAN continued • Recent IRS audit positions Powell and Kerr did indeed much and had to reevaluate. What capital are performance cantly, so found in the January issue • Defense considerations their business plan signifi bhphreport.com 1 2013 Is in the Rearview Mirror, So What’s Ahead? Doing What Are You Your Today To Bring Customers Back? of Department Justice Sues Two North Carolina BHPH Dealers January 2014 | Volume 1 | No. 1 A Publication of NABD and SubPrime Auto Finance News Rise BHPH Buzz: Perceived in Voluntary Repossession Concerns Sparks Operators’ By Nick Zulovich, annual-PARK, Associates 60 meetings OVERLAND Daughtry, NCM close to buy-here, By Gene Associates attends 20 Groups of January 2014 of the BHPH Report February 2014 N.C. — and RALEIGH, appears Editor HOUSTON of Revenue Service Carmichael within the The Internal Kan. — Brent audit efforts one partic-to be increasing industry. And important for used-vehicle NCM with Alliance of Buy-Here, is especially include under-the country ular element The National agendas often as well dealers to ly throughout — in-HOUSTON While meeting Carmichael veteran operators buy-here, pay-here is giving compliance, pay-here dealers. oper-by learning 1099-C. Dealers regulatory 2014 BHPH Pay-Here Before delv-stand: Form to prompting is begin discussions about topic who want will ben-all elements to see that professionals another specific the as ing too heavily find answers dicated other to chance industry multi-store, on each lean the about as well as the into this wide-more ators to action. dealer top-gravel-lot in for Jan. 11 single operation ranging thriving a the efit Camp is set of BHPH Boot Attend-company. ic, two account-multi-state of Charlotte. page 3 NABD’s next in-on N.C., just east ing experts BUZZ continued and 12 in Monroe, operation dicated opera-the un-ees will have part of the BHPH who tors need to to examine all Ingram Walters, im-I’m in with opportunity of “When derstand one If has been associated portant point. its inception dealerships store NABD since the BHPH his fi-has been running and has a related doing Scott Ruby for more nance compa-own dealerships McGladrey consulting IRS forms than 20 years. to file these with ny, the potential Walters along about the Ken might be necessary. founder or itself collects NABD collections “If the dealership is required. But to use the 1099-C Shilson intend of that the one paper, no Form structure is outline every sales, two days to have occurred the more common the paper to their re-to cre-we sells it takes triggering events things step the that in that struc-car dealership a re-large of eight dissected. company, and establishing on the have to from do that McGladrey lated finance audit and levy potential store, we here is that, company does under-BHPH at is compliance, busi-successful “The importance look ture the finance Form 1099-C require-examinations ate a take to comply. a return for every we will thing in the that at fines for failure and do company, regulatory inventory income tax company comply with an overlooked a tax director lated finance now federal officer or owner of a to finding “What was Scott Ruby, their charge-offs, of collections accounting to go ness, an must indicate of past regulations ment,” said some writing and a nationwide the notes the the past because to the front burner,” who signs the tax return filed all of the McGladrey, Register for quickly. and I read moved turn back this session. that they have go of indus-has been returns are or confirm limited for firm. happened.” 1099. The Space is see on decades what presi-Shilson added. bhphinfo.com. And based to visiting perjury. It’s necessary Forms back by Ken Shilson, penalties of boot camp by of Buy-signed under that people understand try interaction and Dire National Alliance NCM Associates majority of Past Behavior confusing, to real important dent of the Dealers, the which can be to comply,” Brent Carmichael, finance these rules, Here, Pay-Here have a related for failing Consequences avoid penalties BHPH dealerships that States cautioned Ruby said. company. to make sure and Shilson in the United have if they Both Ruby “You also want “Most dealers not have been portfolio Forms 1099-C significant are a operators who might to provide you’re not issuing for no other reason that have a company. There if, were required ’” to be a related finance the vast majority do, aware that they customers (and file the are not required 1099 is going but to an unnecessary few that don’t, and may cause Forms 1099-C even if a voluntary than to a customer the dealership IRS audit ac-forms with the IRS) Shilson said. of debt oc-confusing a charge-off or angst between want any upset “There is considerable used-car indus-repossession or position that conflict don’t now in the whatev-IRS takes the customer. You to your show-tivity right “The IRS for Form curred. The required if one and might return reporting is the people who try,” he continued. decided to bring IRS audit Form 1099-C that send-room,” he continued. er reason has emphasized question into Shilson also unnecessar-1099-C issuance 1099-C forms on an oper-ing Form more strain Series can handle the with ily puts even Form 1099-C is contending ator who already BHPH Report’s other elements so operators on page 6 mandates, including: By Nick Zulovich, Editor the FDCPA in 1977, he said lawmakers deliberately excluded creditors from the law’s requirements. “In November the CFPB released what they call an advanced notice of pro-posed rulemaking (ANPR). In essence, what the ANPR is the agency is alerting the world, ‘We’re thinking about doing rules in the arena, and here are some of the questions that we’re asking internal-ly and externally.’ ey ask for interest-ed parties to respond back based upon these questions relative to them,” Pe-terson said in an interview with BHPH Report. “ ere were certainly things includ-ed in that group of information that wasn’t germane to us as buy-here, pay-here dealers, but there were other things being said that were very much of inter-est to us,” he continued. “Our process, certainly we get input from our board. We get some of their thoughts. We talk-ed to other members of the association, in particular buy-here, pay-here folks, on this particular issue. “We got some good input from deal-ers that would be a ected by any change that the CFPB would make if they start-ed to change things that impacted cred-itors collecting on their own debts. at was our primary concern,” Petersen added. Addressing Speciﬁ c CFPB Questions NIADA’s comments covered near-ly a dozen speci c questions o ered by the CFPB. Petersen o en referenced lan-guage contained in the FDCPA to artic-ulate the association’s concerns. “Congress believed the risk of rep-utational harm to the creditor is su -cient to deter the creditor from engag-ing in the types of debt collection prac-tices the FDCPA intended to prohibit,” Petersen wrote to the CFPB. “NIADA believed then and continues to believe that Congress’s logic is sound. Deal-ers collecting their own debt are deep-ly concerned about their reputation.” NIADA continued on page 2 bhphreport.com 1 about J.D. Byrider’s Learn more 2013 dealership outstanding performance January 2014 11 will tackle Revenue Service Future issues of these Internal responsibilities • Customer insolvency IRS continued state and issues to consider • Differences between • Compliance audit positions • Recent IRS • Defense considerations federal rules bhphreport.com 1 March 2014
Insolvency Exception Could Help Form 1099-C Recipients
HOUSTON and RALEIGH, N.C. — Working with customer disputes isn’t an unfamiliar situation to most buy-here, pay-here operators. Dealers have become accustomed to smoothing out situations about repairs, payments and a host of other issues.
Another customer concern happening more often stems from individuals who had their vehicle repossessed and the loan balance forgiven (or discharged under state law). That process forces operators by federal law to file with the IRS and send to the borrower Form 1099-C showing that the discharged balance is considered income potentially subject to tax. These customers are notified by the Form 1099-C that they may have a significant tax liability when they file their individual return, despite losing ownership of their car.
However, there is an IRS form that may brighten the day for both the upset customer and the BHPH operator — Form 982 titled, “Reduction of Tax Attributes Due to Discharge of Indebtedness.” If the customer is insolvent immediately before the debt is cancelled and the car is repossessed, the amount reported on the Form 1099-C is not taxable. For this purpose, a customer is insolvent if all of his/her liabilities were more than the value of all assets (including the repossessed car) immediately before the debt was cancelled.
Ken Shilson, founder of the National Alliance of Buy-Here, Pay-Here Dealers who spent decades as a practicing certified public accountant, recently mentioned Form 982 to some veteran operators who were unaware of the potential impact of customers utilizing this process.
“When they hear about it, they say, ‘That’s genius.’” Shilson said.
Potential of Form 982
McGladrey’s Scott Ruby explained to BHPH Report what Form 982 is in a nutshell.
“The income tax law has an insolvency exclusion that says that if your liabilities exceed your assets, you are probably excused from paying tax on cancelled debt,” Ruby said.
Especially in deep subprime where many BHPH customers reside, insolvency might be extremely common. Ruby shared information from the Taxpayer Advocate Service, which is an independent organization within the IRS aimed at making sure that every taxpayer is treated fairly. Each year the Taxpayer Advocate makes a report for Congress that lists changes that the IRS should consider.The 2010 Annual Report to Congress indicates that many taxpayers overlook the
benefit of the insolvency exclusion.
“Based on a study done by the Taxpayer Advocate Service, 47 percent of the taxpayers that received a Form 1099-C would likely qualify for the insolvency exception,” Ruby said. “Our expectation, because this is deep subprime, is that we’re probably talking about an insolvency figure much higher than 47 percent. I expect in deep subprime the level may be as high as 90 percent.”
The bottom line, customers who receive a Form 1099-C probably do not have to pay additional income taxes.
Shilson agreed with Ruby’s estimation.
“When I mentioned the exception to a couple of dealers, they responded by saying nearly everyone in deep subprime is insolvent,” Shilson said.
However, an accounting professional as experienced as Ruby cautioned about the potential pitfalls of Form 982.
“I think that the form is unbelievably confusing” Ruby said. “Customers probably want to talk to their tax accountant to help them compute the amount of their insolvency. If they are insolvent, some or all of the income may be excluded from taxable income. Their tax savings are probably going to far outweigh the cost of the tax preparation.”
Ruby suggested that operators can include Form 982 (and its instructions and worksheets) to customers along with the Form 1099-C, or instruct customers on how they Can obtain it from the IRS.
“You can have a simple handout at the dealership saying, ‘We can’t provide tax advice, but ask your tax advisor and if the Form 1099-C amount can be excluded from income under the insolvency rules.’ Tax preparers are generally pretty busy this time of year and it can be easy to overlook this exception. Sharing this simple phrase ‘please check the insolvency rules’ will be a helpful clue your tax advisor.” Ruby said.
Helping Customers in Financial Trouble
As explained in previous installments in this BHPH Report series, operators who have a related finance company are required by federal tax law to send Form 1099-C when an uncollectable balance has been discharged.Shilson described how BHPH operators can Point to Form 982 to potentially help a customer who experienced an extreme financial hardship such as divorce or mounting medical expenses, causing the repossession and eventual charge-of .
“That’s the customer you want to have this exception,” Shilson said.
And at the same time, Shilson pointed out that operators also can use the power of Form 1099-C. For example, it might be beneficial when some customers default on their installment contract and skip with the vehicle or if a competing dealer sells them a different vehicle and encourages them to abandon the old obligation.
Shilson said these “abandonment” situations have happened more frequently in the current highly competitive environment where deep subprime buyers are being offered newer vehicles by competitors.
“They deserve to get a Form 1099-C.That’s the customer you want to have a tax liability,” Shilson said.
NIADA Makes Position Known Comments Arrive As CFPB Considers Debt Collection Rules
ARLINGTON, Texas — The National Independent Automobile Dealers Association made sure to craft a detailed response when the Consumer Financial Protection Bureau allowed time for comments regarding possible changes to federal rules governing debt collection.Regulators sought the input as they consider the option of changing rules that enforce the Fair Debt Collection Practices Act.
NIADA regulatory counsel Shaun Petersen expressed the association’s opposition to rules designed to regulate creditors such as buy-here, pay-here dealers in the same way as third-party collectors. Petersen noted that when Congress passed McGladrey the FDCPA in 1977, he said lawmakers deliberately excluded creditors from the law’s requirements.
“In November the CFPB released what they call an advanced notice of proposed rule making (ANPR). In essence, what the ANPR is the agency is alerting the world, ‘We’re thinking about doing rules in the arena, and here are some of the questions that we’re asking internally and externally.’ They ask for interested parties to respond back based upon these questions relative to them,” Peterson said in an interview with BHPH Report.
“There were certainly things included in that group of information that wasn’t germane to us as buy-here, pay here dealers, but there were other things being said that were very much of interest to us,” he continued. “Our process, certainly we get input from our board.We get some of their thoughts. We talked to other members of the association, in particular buy-here, pay-here folks, on this particular issue.
“We got some good input from dealers that would be affected by any change that the CFPB would make if they started to change things that impacted creditors collecting on their own debts. That was our primary concern,” Petersen added.
Addressing Specific CFPB Questions
NIADA’s comments covered nearly a dozen specif c questions offered by the CFPB. Petersen of en referenced language contained in the FDCPA to articulate the association’s concerns.
“Congress believed the risk of reputational harm to the creditor is sufficient to deter the creditor from engaging in the types of debt collection practices the FDCPA intended to prohibit,” Petersen wrote to the CFPB. “NIADA believed then and continues to believe that Congress’s logic is sound. Dealers collecting their own debt are deeply concerned about their reputation." Petersen explained that BHPH dealers “will often go to great lengths to ensure a positive customer experience,” including spending their own money to repair customers’ vehicles because “experience has shown that often, if a customer’s car breaks down at any point while a loan balance exists, the risk that the customer ceases to make the required installment payments increases dramatically.Thus, dealers invest heavily in the postsale customer relationship as an incentive to repayment.”
In addition, Petersen said the CFPB provided no evidence or statistics that showed first-party auto loans — or any auto loans — are a source of debt collection concerns, or even a significant source of debt collection activity.
NIADA provided input on other issues, as well, opposing unnecessary burdens such as a debt verification process for first-party auto lenders, who have a direct relationship with the customers from which they are collecting.
Meeting with Bureau Officials
Along with the comments, Petersen along with NIADA executive vice president Steve Jordan visited with CFPB officials earlier this month. Petersen described the encounter as quite positive.
“We were very clear that we’re very much interested in working with them in anything that they do in the debt-collection sphere, in the military relations sphere and the hot issues that were communicated at (the Vehicle Finance Conference hosted by the American Financial Services Association) with the fair lending issues and disparate impact,” Petersen said.
“We want to be a tool and a resource for the bureau and what they’re doing to gather information about the industry and certainly as they make decisions that would impact the regulations of the industry and especially the enforcement of those regulations on the industry.We want to be abreast of those issues and to let them know we can be a resource for them,” he went on to say.
Signal of What Might Be Ahead
At the same time, while no official rule change proposal has been made by the CFPB, Petersen is hoping BHPH dealers will maintain current practices and be aware that they might have to be altered depending on what federal regulators do.
“I feel confident that the buy-here, pay-here industry is aware of the ‘common-sense’ things you could do when collecting on your own debt that could be construed as abusive, things like threatening people with criminal action. I would hope that the vast majority of them would understand those are practices that nobody condones,” Petersen said.
“What we are hopeful for and what we’re spending a lot of time as an association is to educate and this response to rule making,” he continued. “Look, this is something the CFPB is just collecting comments on right now.There’s been no proposed rule. There’s been no statutory change in regulation. They’re just gathering information. But this is the first step.
“This should be the blinking light on the horizon saying here’s where we’re going and it’s something to be aware of,” Petersen went on to say. “I guess I almost liken it to that this is the lighthouse and the ship in the ocean sees the lighthouse. The details aren’t there until you get a little closer. Then you get the light along the shore to point out the details of the rocks. But certainly the advanced notice of proposed rule making is that lighthouse where I can see something on the horizon is coming. The next step is to see if the CFPB decides to go down that road and propose specific rules in very detailed language to say this is how they’re going to regulate.
Petersen indicated to BHPH Report that There is no specific timetable as to when the CFPB may propose rules changes regarding the FDCPA. For now, he is waiting just like the rest of NIADA and the BHPH industry.
“I’m sure the CFPB will take whatever appropriate time they feel they need to consider comments that have been submitted,” said Petersen, who added that more than 300 comment submission were made by consumers, industry groups, service providers and other interested parties.
“They certainly have some study time.We’ll see if they make any proposed rule changes. We certainly hope they don’t,” he added.
EXCERPTS FROM OFFICIAL NIADA COMMENTS TO CFPB
“The bureau asks about the usefulness and cost effectiveness of a central repository system for the sharing of documentation and information about debts. NIADA is opposed to the creation of a central repository for the sharing of debt related documentation and information. We believe that there is no usefulness to such a system between automobile dealers and their customers. The relationship between a customer and the automobile dealer collecting its own debt is a personal, interactive one. The customer and dealer are generally from the same town, far different from a national creditor or collector engaged in commerce with consumers all across the country. There is no need to require dealers or their customers to jump through administrative hoops such as this to provide information a customer already has or can easily get from the dealer directly. Moreover, given the status the majority of NIADA members have as small businesses, such a requirement imposes additional costs to the dealership that are unnecessary. Furthermore, NIADA has privacy related concerns about putting a consumer’s personal information in a place no longer under the dealer’s control.”
“The CFPB asks about the imposition of limitations on contacting consumers except during specific hours when using newer communications technology such as email, text messaging, or other media. Because of the continual change in communications technology, NIADA believes the CFPB should not unduly limit a consumer’s ability to communicate with a creditor using any new available technology. There is no need to stife the use of email, texting, social media sites, etc. by imposing any restrictions on consumers or creditors communicating with each other through these media given the ability of the consumer to turn off such devices.”
“The bureau seeks comment about the types of places, if any, that are unusual or that collectors know or should know to be inconvenient for them to contact consumers. NIADA believes that it is impossible for a dealer collecting its own debt, or any collector, to know if a consumer has a mobile phone in an unusual or inconvenient place at the time a call is made. To try to determine the consumer’s location may require a breach of privacy, but in any event, is an absurd idea especially when a consumer can elect to ignore the call or turn the mobile device off.”
Download the entire comments from the National Independent Automobile Dealers Association to the Consumer Financial Protection Bureau regarding possible changes to federal rules governing debt collection.
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