As we have been reporting since 2013, the Consumer Financial Protection Bureau’s attacks on what it considers discriminatory and subjective dealer pricing of finance rates should be seen as nothing less than an outright attempt to reshape the auto finance industry. These regulatory actions have continued in earnest through the present, as we’ve discussed here and here. One of our key observations has been that the subtext of the CFPB’s message to the industry was that discretionary pricing in indirect auto lending will continue to be viewed as inherently suspect, and that the CFPB will push for what Director Richard Cordray called in November 2013 “non-discretionary compensation systems” for dealers in indirect lending arrangements.
In response to these pronouncements, in April 2014, BMO Harris Bank became the first lender to move away from a dealer reserve rate to a flat rate auto financing pricing model. But according to a recent article by Auto Finance News, after a slight uptick immediately following the move to flat rate pricing, by July 2014 BMO Harris’s deal volume dropped by 50%, going from an average of around 12,000-15,000 deals per month from January-June 2014, down “to the 8,000-unit-per-month range” for the months of July, August, and September. The article quotes a spokesperson from BMO Harris who contends that the drop-off “was not due to the new flat-fee structure,” but he did not provide any alternative reason for the decline.