CFPB Proposes New Rule to Oversee Nonbank Auto Finance Companies
By: Melanie Brody, Anjali Garg*
*Ms. Garg is not admitted in D.C. She is supervised by Stephanie Robinson, a member of the D.C. Bar.
The CFPB proposed a new rule on September 17, 2014, that would enable the Bureau to oversee nonbank auto finance companies. With the proposal, the CFPB takes another step toward expanding its supervisory authority over nonbanks. The Bureau released the proposed rule along with a report on recent examinations of bank auto lending activities and a white paper describing its proxying methodology for imputing race and ethnicity when analyzing fair lending compliance on non-mortgage credit products.
Highlights of the Proposed Rule
The CFPB has supervisory authority over larger participants in a market for consumer financial products or services under Dodd-Frank. The proposed rule uses this authority to bring nonbank auto finance companies into the Bureau’s fold. The CFPB expects the covered nonbank participants to include specialty finance companies, captive nonbanks, and “Buy Here-Pay Here” finance companies. The Bureau estimates that this market includes more than 500 nonbank auto lenders.
The proposed rule:
1. Expands the definition of financial product or service to include extending or brokering leases of an automobile, including those that are the functional equivalent of a purchase arrangement;
2. Makes a technical correction to the definition of “nonbank covered person” to include any person that engages in offering or providing a consumer financial product or service and any affiliate of a person that engages in offering or providing a consumer financial product or service if such affiliate acts as a service provider to such person;
3. Makes technical corrections to the definition of “annual receipts” under the Consumer Reporting Rule regarding formerly affiliated companies;
4. Defines the automobile financing market to include grants of credit for the purchase of an automobile, refinancing of such credit obligation, purchases or acquisitions of those credit obligations, and auto leases and purchases or acquisitions thereof;
5. Covers participants in the auto financing market that have at least 10,000 aggregate annual originations; and
6. Carves out auto finance securitizations and persons that are predominantly engaged in the sale and servicing and/or leasing and servicing of motor vehicles (e.g., auto dealers).
Comments to the proposed rule will be due 60 days after it is published in the Federal Register. If you have any questions about the proposal or would like assistance with submitting comments, please let us know. We will publish a more comprehensive analysis of the proposed rule in the coming weeks.
Auto Finance Examination Results
The CFPB also released a special Supervisory Highlights outlining the Bureau’s fair lending findings in its supervision of auto lending by banks. The report notes that fair lending violations in auto financing are primarily due to discretionary pricing adjustments. The report indicates that settlements with supervised institutions will result in $136 million in consumer redress for up to 425,000 consumers, including the December 2013 CFPB and Department of Justice settlement against a bank auto lender resulting in $80 million in consumer redress.