As states take up the compliance mantle individually, independent auto dealers are left to figure out compliance issues across many states. An independent dealer operating in one state shouldn’t ignore what’s going on in other states, recommends Maryland law firm Hudson Cook. States that are picking up the regulatory mantle, include New York, Maryland, California and Idaho.
LAS VEGAS – While federal regulators have been declawed in Trump 2.0, compliance experts warned dealers this summer to stay vigilant and avoid complacency. Eric Johnson a partner at the Maryland-based law firm Hudson Cook, and Mark Metrey, an associate with the firm, discussed changes in the landscape of compliance at the NIADA Convention & Expo in June. Johnson stated that Trump’s second term has a philosophical approach of dismantling the administrative state. “We’ve seen an even greater push, I think, into an even more aggressive deregulatory push by this administration,” he said.
In January, the administration fired the Consumer Financial Protection Bureau director and then rolled back rules the CFPB had earlier issued, along mass firings. There still remains a focus on actual fraud and protecting veterans and military members. Fraud against consumers, especially in the area of mortgages, has moved to the highest priority, Johnson said. The Biden administration in the last couple of years had been focusing 70% of its regulatory efforts on non-banks while only 30% on large, multi-national banks. The Trump administration is flipping that, Johnson said.
The focus is now on fraud affecting consumers and returning money to them as opposed to filling regulatory coffers, Johnson said The administration is also moving away from cases involving disparate impact and, instead, targeting clear intentional cases of discrimination. It’s a philosophical change from making everything a federal investigation to pushing it down to the states, Johnson said. They also rescinded dozens of advisory documents, rules and advisory opinions going back to the start of the CFPB.
The CFPB has also rescinded dozens of lawsuits and consent orders previously issued, as well as junk fee initiatives. Metrey discussed the Federal Trade Commission, where the change in focus is a less aggressive, more traditional fraud-based enforcement. Both the FTC and CFPB are moving away from “novel legal theories” and targeting simple clear fraud cases.
There is also a focus on reducing state-federal coordination on regulatory efforts. A lack of federal coordination can lead to a lot of fragmented legal risks,” Metrey said. “What’s below the federal level is left to the states where there are 50 of them, 51 if you want to include D.C. “Those are a lot of jurisdictions that you have to ensure you have compliance with.” States that are picking up the regulatory mantle, include New York, Maryland, California and Idaho, Johnson said. States are even advertising job postings targeting former CFPB employees.
Metrey said even if an independent dealer is only operating in a single Midwest state, they shouldn’t ignore what’s going on in California or New York. “A lot of states like to piggyback onto what other states are doing,” Metrey said. “They may pursue the same legal theories (as that other state). “It really is a risk to keep in mind.” Metrey and Johnson insisted dealers should remain diligent on firming up their compliance efforts. “With a vacuum at the federal level, the states are naturally going to want to step in,” Metrey said. Using an example of war, an army doesn’t shore up its defenses under fire, they do it when things are quiet, he said.
Dealers should look at risks from bad contracts, unclear disclosures or hidden fees. They should also beware of joint liability in dealer-finance company transactions, while also expecting efforts by states and plaintiffs linking dealers to broader financing practices. Litigation dangers could involve class actions, state attorney general investigations or claims of unfair or deceptive acts and practices.
Johnson and Metrey recommend dealers should conduct proactive legal reviews, strengthen documentation and disclosure practices and build compliance plans that anticipate state-level enforcement.
