On June 10, 2015, the CFPB issued a Final Rule amending the scope of its regulatory authority to include “larger participants” of the automobile financing industry. Under the Final Rule, the CFPB will supervise certain nonbank auto finance companies that (1) originate loans for the purchase of automobiles; (2) refinance existing auto loans; (3) provide certain types of automobile leases; or (4) purchase any of these types of obligations.
To qualify as a newly-regulated “larger participant” of the auto finance market, companies must engage in at least 10,000 such transactions per year. The CFPB estimates that this threshold translates to supervision of about 34 nonbank auto finance companies, which originate approximately 90% of nonbank auto loans and leases in the United States.
In its press release announcing the Final Rule, the CFPB noted that it already regulates large banks and credit unions that engage in auto financing. This expansion of the agency’s oversight, however, means that the nonbank auto lenders making the vast majority of nonbank auto loans and leases will now be monitored for compliance with federal consumer protection laws including the Equal Credit Opportunity Act, the Truth in Lending Act, the Consumer Leasing Act, and the Dodd-Frank Act’s prohibition on unfair, deceptive, or abusive acts or practices.
The press release also noted that the Final Rule was adopted largely as proposed (see our earlier post for additional background on the Proposed Rule). One substantive change in the Final Rule is that the agency added minor limitations on the types of refinancing that count toward the 10,000-transaction threshold. Additionally, the Final Rule excludes from the calculation certain purchases by special purpose entities that are made to facilitate asset-backed securitizations.
The Final Rule defining “larger participants” of the automobile financing market is the fifth such rule that the CFPB has issued pursuant to its authority under the Dodd-Frank Act to regulate nonbank “larger participants” in various markets for consumer financial products and services. The CFPB has previously issued rules defining “larger participants” of the consumer reporting, consumer debt collection, student loan servicing, and international money transfer markets.
In light of this Final Rule, nonbank auto financing companies will need to evaluate their production levels to determine whether they may be subject to this new CFPB oversight. Industry members may also wish to review the Automobile Finance Examination Procedures, which the CFPB released simultaneously with the Final Rule, which outline the criteria for evaluation of entities now subject to CFPB regulation.
The Final Rule will be effective 60 days after its publication in the Federal Register.