When a US military service member receives orders to deploy overseas, it can cause financial stress for his or her family. VW Credit, Inc. (VCI), which provides financing for US Volkswagen customers, is trying to ease that burden.
Individuals may call VCI to get an interest-rate reduction on their automobile lease or credit contract (“loan”) under the Servicemembers Civil Relief Act. On those occasions, VCI responds by following a set of procedures designed to ensure compliance with the law, making it possible for those who serve the country to do their duty with less worry about their finances.
Beginning in 2011, the automobile finance industry had a new cop on the beat, the Consumer Financial Protection Bureau (CFPB), to scrutinize its activities and policies regarding this law and many others. In the wake of the mortgage meltdown and other financial scandals of the 2000s, the landmark Dodd-Frank law imposed tougher standards on the finance industry, including the creation of the CFPB. It was the first time that the federal government regulated automobile financing.
“Previously, the oversight occurred only at the state level,” says Kevin McDonald, senior vice president, chief compliance officer, general counsel, and secretary for VW Credit. He also serves as an adjunct law professor at the Washington University School of Law in St. Louis, where he teaches consumer law. “After Dodd-Frank, we had to ensure our compliance program was built up and out to satisfy the myriad demands of a new federal regulator.”
McDonald had practiced law for Volkswagen—which includes the Audi and Ducati motorcycle brands—for most of his career, which included a stint in Germany. Shortly after being named general counsel to VCI, he was tapped to lead a new compliance department as a response to the Dodd-Frank legislation. He began with one employee in his department; today, he leads a team of twenty-four. Considering the breadth of Dodd-Frank—some 2,300 pages, not including the more than four hundred regulations coming afterward—more help comes in handy.
McDonald handled the construction of a compliance management system by first prioritizing the company’s procedures and policies. This included written guidelines, employee training modules, procedures for responding to consumer complaints, analysis of complaints, and resulting policy reviews and revisions. At first, staffing proved to be a challenge, as the compliance discipline in auto financing was new and there weren’t any employees within the company or outside of it with experience in this specific field—in particular regarding the CFPB.
“And it wasn’t something you could go to school to learn,” McDonald says.
As he evaluated the qualifications of finance professionals, paralegals, and attorneys for his team, he weighed a choice between two types of people: those with backgrounds in compliance from banking, insurance, and other finance industries or those with an automobile industry background but no compliance experience. He found that the latter—particularly those who had worked for Volkswagen—were a better fit.
“We’ve found it to be more effective to hire people who know the company’s processes and then teach them compliance,” McDonald says. Excellent resources abound that help train compliance professionals, including the National Automobile Finance Association (NAF). McDonald, who holds law degrees from German and American universities, also obtained a certification from NAF for consumer credit compliance. “Compliance is an ongoing learning experience,” he says.
His external partners have been impressed with his knowledge of the field. “VW Credit is fortunate to have Kevin as their general counsel,” says Stuart M. Litwin, partner and cohead of the structured finance practice at Mayer Brown LLP. “He is one of the most knowledgeable, dedicated, and proactive GCs I work with. His excellent judgment has served the company well.”
The CFPB gradually rolled out regulations and enforcement, giving the auto finance industry guidance on Dodd-Frank compliance. One key to developing VW Credit’s compliance program was “ensuring that the right stakeholders would receive the right information at the right time,” McDonald says, adding that it’s an ongoing process.
It is counterproductive to overwhelm employees with too much information. Guidance documents and scripts had to be succinct so employees handling calls from service members, for example, could clearly explain the ramifications of the Servicemembers Civil Relief Act and the rights and options to which these customers were entitled. This information also had to be easily and quickly accessible on customer service representatives’ workstations.
One of the first areas of emphasis for the CFPB was fair lending. The bureau zeroed in on ensuring that auto finance companies provided access to credit for all customers regardless of gender, race, and age. McDonald and his staff worked closely with outside counsel that had worked with banks on lending compliance to develop VW Credit’s program. Drawing from their experience dealing with regulations in other financial arenas, these compliance experts made some accurate deductions about what the CFPB would enact for auto financing.
Though the CFPB published a manual to aid with compliance, there were no off-the-shelf IT systems or training programs available. Software and training modules had to be built from scratch, and were coordinated and overseen by a compliance committee composed of executives from multiple departments.
When the CFPB began enforcing fair-lending rules, VW Credit was already in a good position to comply thanks to these early efforts.
“Our fair lending controls were well received by the CFPB,” McDonald says, adding that the company had an early indication it was on the right track.
CFPB periodically issues supervisory highlights drawn from consumer complaints. “We take the supervisory highlights and run them through our systems to identify compliance gaps,” McDonald says. Software helps identify from which department these gaps originated, and with that information, the compliance team can devise ways to address any issues.
McDonald’s team also looks to improve compliance from internal customer complaints. Though complying with Dodd-Frank-originated regulations requires considerable work and expense, it does yield better customer service, McDonald says. “It takes a team to win,” he adds, “and no one person can ever handle compliance by him or herself. I am where I am because of my great team of compliance professionals. They are as devoted to compliance as they are to helping customers. As you improve upon identifying trends and fixing systemic issues, you are going to have better customer experiences.”
McGuireWoods congratulates Kevin McDonald for going the extra mile in providing effective and efficient legal and business solutions to Volkswagen Credit, Inc. At McGuireWoods, we share Kevin’s commitment to excellence in everything we do, which gives our clients a competitive advantage. Our firm has earned the loyalty of its many longstanding clients through deep understanding of their businesses and broad capabilities in corporate transactions, high-stakes disputes, and complex regulatory and compliance matters. Along with our wholly-owned government affairs affiliate, McGuireWoods Consulting, our goal is to provide nothing less than world-class advice and service to our clients.