By Katalina M. Bianco, J.D.
The Consumer Financial Protection Bureau has ventured into automobile financing territory with a newly-adopted rule that allows the bureau to supervise the largest nonbank automobile finance companies—those that originate, acquire, or refinance more than 10,000 loans per year. These companies are defined as “larger participants of the automobile financing market” that the CFPB can supervise under the Dodd-Frank Act. The bureau said it intends to use the rule to supervise the companies’ compliance with the Equal Credit Opportunity Act, Truth in Lending Act, Consumer Leasing Act, and other federal consumer financial protection laws.
According to the CFPB, about 34 companies and their affiliates will be brought under its supervision by the rule. These companies originate about 90 percent of the loans made by nonbanks, and they made loans to about 6.8 million consumers in 2013.
Rule applicability. The bureau will supervise companies that finance or refinance purchases or leases of cars, sport utility vehicles, light duty trucks, and motorcycles. Leases are covered because the bureau determined that they are functionally equivalent to loans. However, the bureau exempted title loans from the rule and provided that loan securitization purchases and related activities will not count toward the 10,000-loan threshold. The financing of recreational vehicles, motor homes, golf carts, and motor scooters is not covered.
The rule does not impose any new substantive consumer compliance duties on the finance companies.
Examination procedures. Simultaneously with announcing the rule, the CFPB published updates to its Supervisory and Examination Manual to instruct examiners on how to supervise the new group of companies. While examiners will be looking at compliance in general, the bureau noted specifically that they will look at whether the finance companies are: marketing loans or leases fairly, without misleading or deceptive practices; giving accurate information to consumer reportin agencies; collecting debts and repossessing vehicles legally; and offering financing fairly, in compliance with the Equal Credit Opportunity Act.
Indirect auto lending. This is not the CFPB’s first foray into the auto lending business. In March 2013, the bureau warned indirect lenders, whether banks or nonbanks, that they could be held responsible for auto dealers’ ECOA violations if they allow the dealers to increase consumer interest rates and then compensate the dealers with a share of the increased interest revenues.
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