Federal Regulator will now Supervise Large Nonbank Auto Finance Companies

Federal Regulator will now Supervise Large Nonbank Auto Finance Companies
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June 12, 2015

A federal regulator will now be able to supervise larger nonbank auto finance companies for the first time.

Published this week, the rule will provide the Consumer Financial Protection Bureau (CFPB) with the same authority over nonbank auto finance companies as it already has over traditional banks and credit unions.

Auto loans are the third largest category of household debt, behind mortgages and student loans. American consumers had about $900 billion in auto loans outstanding in the fourth quarter of 2014. The automobile leasing market also continues to grow as more than a quarter of new cars are acquired through leases.

Currently, the Bureau supervises auto financing at the largest banks and credit unions. The new 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 Bureau estimates that it will have authority to supervise about 35 of the largest nonbank auto finance companies and their affiliated companies that engage in auto financing. These companies together originate around 90 percent 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.

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. Examiners will be assessing potential risks to consumers and whether auto finance companies are complying with requirements of federal consumer financial law.