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CFPB Proposes Rule to Extend Oversight to Largest Nonbank Auto Lenders

Thursday, September 18, 2014

Yesterday, the Consumer Financial Protection Bureau (CFPB) announced that it intends to supervise the largest nonbank based auto lenders in a new "larger participant" proposed rule. The Bureau also announced that it has required indirect auto lenders to pay another $56 million to 190,000 consumers as redress for abusive practices, including dealer markup. 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. Many lenders covered by the new CFPB rule are also deeply invested in the increasingly volatile subprime auto lending market.

CRL Senior Vice President, Chris Kukla, who will testify at the CFPB hearing on auto lending practices in Indianapolis, issued the following statement:

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.

The CFPB's proposed rule and its supervisory highlights mean that auto lenders who engage in abusive practices, especially dealer markup, have been put on notice. The Bureau's disclosure that it uses a well-established methodology to predict the race and ethnicity of borrowers strengthens the case for eliminating dealer markup as the only way to end the risk of racial discrimination inherent in the practice. Doing so would restore trust to the market, and eliminate a significant burden placed on lenders who have to spend time and resources determining if the loans they service discriminated against a consumer.

We are hopeful that extending oversight to the largest nonbank auto lenders will lead to increased transparency and a fairer market by bringing public scrutiny to bear on the lenders involved in abusive practices and highlighting the lenders that that act in the best interest of all consumers, especially those with blemished credit or thin credit files. The ultimate goal for regulators should be a market that is transparent, robust and sustainable.

The Dodd-Frank Act tasked the CFPB with defining larger nonbank participants in a number of markets, including installment loans, money transmitting, debt collection and auto lending, before initiating any supervisory actions. With larger auto lending participants defined, the CFPB will likely conduct oversight to ensure these entities comply with existing consumer protection and fair lending laws.

For more information, or to arrange an interview with a CRL spokesperson on this issue, please contact contact Andrew High at 919-313-8533 or andrew.high@responsiblelending.org.