Automobile Finance Supervision: CFPB Final Rule for the Nonbank Automobile Financing Market and CFPB Examination Procedures
The Consumer Financial Protection Bureau (“CFPB” or “Bureau”) currently supervises large banks, thrifts, and credit unions (collectively, “Banks”) engaged in automobile finance as well as their affiliates. On June 10, 2015, the CFPB issued a final rule that expands the Bureau’s supervisory authority to include nonbanks that qualify as “larger participants” of an automobile financing market, as defined by the CFPB. In final form, the rule is substantially similar to the proposed rule released in September 2014 (please refer to KPMG Regulatory Practice Letter 14-22). It will become effective 60 days after publication in the Federal Register.
Under the final rule, the CFPB has defined the market for automobile financing to include:
Grants of credit for the purchase of an automobile, refinancings of such credit obligations, and purchases or acquisitions of such credit obligations (including refinancings); and
Agreements to lease an automobile and purchases or acquisitions of such automobile lease agreements.
The “larger participants” of this market are defined to include nonbank companies that, together with their affiliate companies, completed at least 10,000 aggregate annual loan and lease originations in the preceding calendar year. The annual originations of an affiliate must be aggregated with the annual originations of the nonbank company, even if the affiliate relationship was not ineffect for the entire calendar year.
An exclusion from the “larger participants” definition is provided for motor vehicle dealers that are excluded from the Bureau’s authority by Section 1029(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) (i.e., motor vehicle dealers that extend retail credit or retail leases directly to consumers and do not routinely assign those credits or leases to an unaffiliated third party). An exclusion is also provided for those dealers that: meet the statutory definition of a motor vehicle dealer under Section 1029(f); are described by Section 1029(b); and are predominantly engaged in the sale and servicing of motor vehicles, the leasing and servicing of motor vehicles, or both.
The CFPB estimates 34 nonbank financial companies currently meet the criteria for a “larger participant” of the automobile financing market, as defined in the final rule. They further estimate these companies originate 90 percent of the nonbank loan and lease activity.