Ford 2014 Annual Report Download - page 26

Item 1A. Risk Factors (Continued)
Increased competition from banks, financial institutions, or other third parties seeking to increase their
share of financing Ford vehicles. No single company is a dominant force in the automotive finance industry. Most
of Ford Credit’s bank competitors in the United States use credit aggregation systems that permit dealers to send,
through standardized systems, retail credit applications to multiple finance sources to evaluate financing options
offered by these sources. Also, direct on-line or large dealer group financing options provide consumers with
alternative finance sources and/or increased pricing transparency. All of these financing alternatives drive greater
competition based on financing rates. Competition from such institutions and alternative finance sources could
adversely affect Ford Credit’s profitability and the volume of its retail business. In addition, Ford Credit may face
increased competition on wholesale financing for Ford dealers.
New or increased credit, consumer, or data protection or other regulations resulting in higher costs and/or
additional financing restrictions. As a finance company, Ford Credit is highly regulated by governmental authorities
in the locations in which it operates, which can impose significant additional costs and/or restrictions on its
business. In the United States, for example, Ford Credit’s operations are subject to regulation, supervision, and
licensing under various federal, state, and local laws and regulations, including the federal Truth-in-Lending Act, Equal
Credit Opportunity Act, and Fair Credit Reporting Act.
Congress also passed the Dodd-Frank Wall Street Reform and Consumer Financial Protection Act (“Act”) in 2010 to
reform practices in the financial services industries, including automotive financing and securitizations. The Act directs
federal agencies to adopt rules to regulate the consumer finance industry and the capital markets and, among other
things, gives the Consumer Financial Protection Bureau (“CFPB”) broad rule-making and enforcement authority for a
wide range of consumer finance protection laws that regulate consumer finance businesses, such as Ford Credit’s
retail automotive financing business. Exercise of these powers by the CFPB may increase the costs of, impose
additional restrictions on, or otherwise adversely affect companies in the automotive finance business. For example, in
March 2013, the CFPB issued a bulletin recommending that indirect vehicle lenders, a class that includes Ford Credit,
take steps to monitor and/or impose controls over dealer discretionary pricing. In September 2014, the CFPB issued a
proposed rule for the supervision of the largest nonbank automotive finance companies, such as Ford Credit. This is
the initial step that is expected to lead to examinations of nonbank automotive finance companies for compliance with
consumer finance protection laws as early as 2015.
In addition, the Act provides that a non-bank financial company could be designated a “systemically important
financial institution” by the Financial Stability Oversight Council and thus be subject to supervision by the Board of
Governors of the Federal Reserve System. Such a designation would mean that a non-bank finance company such as
Ford Credit, in effect, could be regulated like a bank with respect to capital and other requirements, but without the
benefits of being a bank—such as the ability to offer Federal Deposit Insurance Corporation (“FDIC”) insured deposits.
The Act also creates an alternative liquidation framework under which the FDIC may be appointed as receiver of a
non-bank financial company if the U.S. Treasury Secretary (in consultation with the President of the United States)
determines that the company is in default or danger of default and the resolution of the company under other
applicable law (e.g., U.S. bankruptcy law) would have serious adverse effects on the financial stability of the United
States. The FDIC’s powers under this framework may vary from those of a bankruptcy court under U.S. bankruptcy
law, which could adversely impact securitization markets, including Ford Credit’s funding activities, regardless of
whether Ford Credit ever is determined to be subject to the Act’s alternative liquidation framework.
In some countries outside the United States, some of Ford Credit’s subsidiaries are regulated banking institutions
and are required, among other things, to maintain minimum capital reserves. In many other locations, governmental
authorities require companies to have licenses in order to conduct financing businesses. Compliance with these laws
and regulations imposes additional costs on Ford Credit and affects the conduct of its business. Additional regulation
could add significant cost or operational constraints that might impair Ford Credit’s profitability.
ITEM 1B. Unresolved Staff Comments.
None.
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