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From Banking and Finance Law Daily, September 17, 2014

CFPB moves to supervise largest auto finance companies

By Richard A. Roth, J.D.

The Consumer Financial Protection Bureau is proposing to exercise its Dodd-Frank Act authority to supervise large nonbank automobile lenders. Auto lenders that originate at least 10,000 loans each year would be covered by the proposed rule. Covered products would include not just purchase loans but also leases and refinance loans. However, auto dealers that are exempt from CFPB authority would be excluded. The bureau estimates that 38 companies will be affected.

The Dodd-Frank Act gives the CFPB the authority to define “larger participants” in markets for certain consumer financial services. The bureau already has exercised this power to supervise large companies in the credit reporting, debt collection, student loan servicing and, most recently, remittance transfer markets.

Auto loan market. According to the CFPB, auto loans are the third-largest category of consumer credit, trailing only mortgage and student loans. In the first quarter of 2014, Americans had 87.4 million auto loans outstanding, with a total balance of nearly $900 billion. The 38 lenders expected to be covered by the proposal originate about 90 percent of auto loans and leases, the bureau says.

Discrimination in auto lending. Simultaneously with the proposed rule, the bureau issued an edition of Supervisory Highlights that focuses on the enforcement of fair credit rules in indirect auto lending. According to the bureau, the CFPB has secured $136 million in consumer redress for as many as 425,000 consumers who were the victims of some form of discrimination. This includes $98 million to be paid by Ally Financial (see Banking and Finance Law Daily, Dec. 20, 2013).

The CFPB has taken previous steps to address its concerns over discriminatory auto loan practices, most notably issuing CFPB Bulletin 2013-02 (see Banking and Finance Law Daily, March 21, 2013). This bulletin warned indirect auto lenders—banks or other companies that regularly buy loans originated by dealers—of the dangers of discrimination in interest rate markups.

Lending practices analysis. The bureau also is trying to help lenders analyze their lending activities to determine whether they might be inadvertently engaging in discriminatory lending. Regulators use a “proxy methodology” to analyze lending, and the bureau is revealing its methodology and computer code so that lenders can perform the same analysis carried out by bureau examiners.

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