In a move that should come as no surprise to anyone who has been following the Consumer Financial Protection Bureau (CFPB), the agency issued a proposed rule last week that would expand its oversight, supervision and enforcement jurisdiction to include nonbank automobile finance companies.
Established by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the Dodd-Frank Act), the CFPB has authority to oversee and regulate entities, such as banks and credit unions, that provide consumer financial products and services. The agency’s jurisdiction extends to certain nonbank entities that the CFPB defines through rulemaking as “larger participants” in a market for “other” consumer financial products or services. 12 U.S.C. § 5514.
On September 17, 2014, the CFPB issued a proposed rule that would allow it to begin regulating an estimated 38 nonbank auto finance companies that it considers to be “larger participants” (per the rule, companies that originate, acquire or refinance at least 10,000 loans per year) in the consumer “automobile financing market.”According to the CFPB, these 38 companies originate roughly 90 percent of nonbank auto loans and leases, and last year provided service to approximately 6.8 million borrowers.
Under the proposed rule, the “automobile financing market” encompasses entities that grant credit for automobile purchases, refinance such obligations, purchase or acquire such obligations, or issue or purchase automobile leases. Id. These entities include specialty finance companies, captive nonbanks (subsidiary finance companies owned by automobile manufacturers), and “buy here, pay here” finance companies. Id. The “automobile financing market” does not encompass title lending or the securitization of loans or leases.
The CFPB says its move to regulate and supervise nonbank auto finance companies is part of its larger effort to curtail discrimination in the auto-lending market. In a press release and report issued concurrently with the proposed rule, the CFPB stated that over the past two years, it discovered that a number of banks subject to agency regulation “had discretionary pricing policies that resulted in discrimination against African-American, Hispanic, and Asian and Pacific Island borrowers.”According to the agency, these discriminatory policies resulted in affected borrowers “paying more for their auto loans than similarly situated non-Hispanic white borrowers.” Id. The CFPB already supervises the auto lending practices of banks with more than $10 billion in assets. According to the CFPB, “[t]his proposal is needed to level the playing field for banks and nonbanks in the auto lending market,” because “every auto lender should be following the law and be subject to the same level of oversight.”
If the proposed rule becomes final, it will be the fifth rule to expand the CFPB’s oversight authority pursuant to the Dodd-Frank Act’s provisions concerning “larger participants” in markets for “other consumer financial products or services.” The four other rules include markets for consumer reporting, consumer debt collection, student loan servicing and international money transfers. It seems clear that the CFPB’s efforts to stretch the boundaries of its jurisdiction won’t be ending any time soon.