Regulatory Issues Remain in the Spotlight

The Consumer Financial Protection Bureau’s (CFPB) increased regulation of auto lenders remains a focal point of interest for dealers and lenders in 2015. As the agency continues to tighten its grip on the industry, we wanted to provide some highlights of the organization’s actions of late.

Extension of oversight to non-bank finance lenders
In June, the CFPB announced a new rule providing the agency with power to supervise larger non-bank auto finance companies. Any auto finance company that makes, acquires or refinances 10,000 or more loans/leases in a year is subject to this new ruling. According to CFPB Director Richard Condray, this rule “will help ensure that larger auto finance companies treat customers fairly.”

Here is what the CFPB will be evaluating:

  • Fair marketing and disclosure of auto financing terms
  • Accuracy of information sent to credit bureaus
  • Fair treatment of consumers when collecting debt
  • Nondiscriminatory lending practices

This new ruling correlates with a statement Cordray made during a field hearing in Indianapolis last year:

“It should not matter whether you get a loan or lease from a company that has a banking charter versus one that does not – every auto lender should be following the law and be subject to the same level of oversight.”

Questions raised over CFPB Actions
The National Automobile Dealers Association (NADA) recently filed a Freedom of Information Act request to make a CFPB inter-office memo public. According to the NADA, this memo shows that the agency is not following through on its claims that it is not targeting auto dealers through enforcement actions. This goes against the Dodd-Frank Wall Street Reform and Consumer Protection Act, which prohibits the bureau from regulating auto dealers.

However, the agency’s targeting of dealer markup – the practice of marking up interest rates on an installment sales contract as compensation for arranging financing – has been viewed by industry experts as an attempt to regulate dealers. In a press release from the organization, NADA President stated “Consumers benefit tremendously from dealer discounts, so they deserve to know if these discounts are in danger being unjustly and unfairly eliminated by overzealous Washington regulators.”

While it remains to be seen what the end result will be from these recent occurrences, it is clear that dealers and lenders need to have their ducks in a row to ensure that all consumers are being treated equally and fairly.