On September 17, the Consumer Financial Protection Bureau (CFPB) proposed to make nonbank automobile lenders subject to the examination and direct supervision of the Bureau. The proposed rule can be found here. Under the proposed rule, the CFPB would include as a “larger participant” any company engaging in more than 10,000 consumer auto loan or lease transactions (originations, refinancings or acquisitions) a year. An exclusion for auto dealers is provided in the proposed rule, which would also exclude investments in asset-backed securities from the 10,000-transaction threshold.
Section 1024 of the Consumer Financial Protection Act of 2010 authorizes the CFPB to designate by rule certain consumer financial markets and their nonbank “larger participants” as subject to CFPB supervision,1 which currently includes on-site examinations but may include registration and reporting requirements. To date, the CFPB has issued larger participant rules for consumer reporting, debt collection, student loan servicing and international money transfer markets.
CFPB larger participant rules define the products or services subject to supervision and establish metrics for determining whether a nonbank is a larger participant, such as annual receipts or transaction volumes.2 A nonbank auto lender that has been characterized as a larger participant will maintain that status, without regard of whether it fell below the 10,000-transaction threshold, until the second anniversary of the first day of the tax year in which it last met the test.3
The proposed auto finance rule was issued as part of the CFPB’s ongoing focus on fair lending in the auto finance market and its adherence to the disparate impact standard. In March 2013, the CFPB issued a bulletin to indirect auto lenders warning that it would hold lenders responsible for discriminatory loan pricing by partnering auto dealers, even if such discrimination was unintentional.4 The current proposed rule was accompanied by a “Supervisory Highlights” report describing the CFPB’s findings on auto lending discrimination since the bulletin was issued.5
1 12 U.S.C. §§ 5514(a)(1)(B), (a)(2).
2 See, for example, 12 C.F.R. § 1090.105 (debt collection market description and larger participant thresholds).
4 CFPB Bull. No. 2013-02, Indirect Auto Lending and Compliance with the Equal Credit Opportunity Act (Mar. 21, 2013).
5 CFPB, Supervisory Highlights (Sept. 17, 2014).
