WASHINGTON—The CFPB published a rule Wednesday that allows the agency to supervise larger nonbank auto finance companies for the first time.
The CFPB also released the examination procedures that examiners will use to ensure that auto finance companies are following the law.
“Auto loans and leases are among the most significant and complex financial transactions in a typical consumer’s life,” said CFPB Director Richard Cordray in a statement. “Today’s rule will help ensure that larger auto finance companies treat consumers fairly.”
Currently, the CFPB supervises auto financing at the largest banks and credit unions. Today’s rule extends that supervision to any nonbank auto finance company that makes, acquires, or refinances 10,000 or more loans or leases in a year. Under the rule, those companies will be considered “larger participants,” and the Bureau may oversee their activity to ensure they are complying with federal consumer financial laws, including the Equal Credit Opportunity Act, the Truth in Lending Act, the Consumer Leasing Act, and the Dodd-Frank Wall Street Reform and Consumer Protection Act’s (Dodd-Frank Act) prohibition on unfair, deceptive, or abusive acts or practices, the agency stated.
Under today’s final rule, which was proposed in September 2014, the Bureau estimates that it will have authority to supervise about 34 of the largest nonbank auto finance companies and their affiliated companies that engage in auto financing. These companies together originate around 90% of nonbank auto loans and leases, and in 2013 provided financing to approximately 6.8 million consumers. The final rule also defines additional automobile leasing activities for coverage by certain consumer protections of the Dodd-Frank Act.
The Bureau is finalizing the rule largely as proposed, with minor changes the CFPB stated. The final rule broadens the category of transactions involving asset-backed securities that are not counted toward the 10,000 transaction threshold. It also makes a minor modification to the definition of refinancing for the purpose of the threshold.
To coincide with this new authority, the Bureau has also updated its Supervisory and Examination Manual to provide guidance on how the Bureau will monitor the bank and nonbank auto finance companies that it supervises. The CFPB said examiners will be assessing potential risks to consumers and whether auto finance companies are complying with requirements of federal consumer financial law. Among other things, examiners will be evaluating whether auto finance companies are:
- Fairly marketing and disclosing auto financing terms: The Bureau will be examining auto finance companies that market directly to consumers to ensure they are not using deceptive tactics to market loans or leases.
- Providing accurate information to credit bureaus: The Bureau will assess whether information auto finance companies provide to credit bureaus is accurate.
- Treating consumers fairly when collecting debts: The Bureau will assess whether auto finance companies are using illegal debt collection tactics.
- Lending fairly: The Bureau will assess whether auto finance companies’ practices comply with the Equal Credit Opportunity Act and other Bureau authorities protecting consumers.
Wednesday’s rule takes effect 60 days after publication in the Federal Register.