In a proposal released this week, the Consumer Financial Protection Bureau announced it intends to exercise increased scrutiny over non-bank auto finance companies that make, acquire or refinance 10,000 auto loans or leases per year. There are approximately 38 auto finance companies in the U.S. meeting that criteria. Combined, these companies provide roughly 90% of the non-bank auto financing in the U.S. To put that figure in perspective, those companies financed the automotive transactions of about 8.6 million consumers in 2013 alone. According to the Federal Reserve Bank of New York, the lenders covered by the proposed rule accounted for more than half of the $355 billion auto loan market last year.
The agency has yet to specifically name all 38 of the entities in question, but experts say the non-bank financers active in the automotive market include most of what are known as the "captives," lending divisions of the automakers themselves. This would include Ford Motor Credit, Ally (formerly GMAC), American Honda Finance, BMW Financial, and the like.
“Many people depend on auto financing to pay for the car they need to get to work,” CFPB Director Richard Cordray declared. “Non-bank auto finance companies extend hundreds of billions of dollars in credit to American consumers, yet they have never been supervised at the federal level. We took action after we uncovered auto-lending discrimination at banks we supervise. Today’s proposal would extend our oversight, allowing us to root out discrimination and ensure consumers are being treated fairly across this market.”
Fair treatment for consumers -- who could be against that? As it turns out, those very finance companies as well as car dealers, are expected to push back. Yet, such newly-extended oversight would be a tremendous help for consumers. The agency would have the authority to examine a wide variety of deceptive behavior, including claims the financing companies make to consumers about their loans or leases, whether the companies accurately report consumer data to credit bureaus, and unlawful debt collection practices.
“We have a responsibility to make sure that the economy that we’re rebuilding is one where middle-class families feel like they can get ahead again, where hard work pays off, where everybody gets a fair shot and everybody does their fair share,” President Obama said in 2012, when he appointed Richard Cordray to head the CFPB. In response to criticism from the banking lobby, he has emphasized that lenders who do not engage in deceptive practices have nothing to fear from the CFPB.
Once the proposal is published in the Federal Register, a public comment period begins. Meanwhile, an informal but lively debate has already begun on the CFPB's own blog. You can read it and weigh in with you r own comments here.
Meanwhile, the CFPB has been holding field hearings in Indianapolis this week. Among other participants, Chris Kukla, Senior Vice President of the Center for Responsible Lending, stated, "For too long, a huge portion of the auto lending market has operated with few rules and few consumer protections. Abusive practices like selling consumers unnecessary insurance and overcharging on interest rates have festered. As a result consumers have lost tens of billions of dollars paying extra interest or paying for worthless add-on insurance products. Some auto lenders have also contributed to the exponential growth of subprime auto lending by pushing consumers into longer-term loans and loans they do not have the ability to repay. Oversight is clearly needed."