CFPB flexes muscles in auto lending sector

Auto finance lenders are keen to demonstrate they have their systems in order and are paying close attention to consumer needs, as this month marks the start of closer oversight of the industry by the Consumer Finance Protection Bureau (CFPB).From 31 August the CFPB’s original powers to supervise auto financing at the largest banks and credit unions have been extended with the introduction of the “larger participant” rule. This sees the agency given a wider remit covering any nonbank auto finance company that makes, acquires or refinances 10,000 or more loans or leases in a year.

Under the rule, those companies will be considered “larger participants,” and the bureau may oversee their activity to ensure they are complying with federal consumer financial laws, including the Equal Credit Opportunity Act, the Truth in Lending Act, the Consumer Leasing Act, and the Dodd-Frank Wall Street Reform and Consumer Protection Act’s (Dodd-Frank Act) prohibition on unfair, deceptive or abusive acts or practices.

The CFPB announced this move back in June, when it indicated that around 34 lenders will be affected by the change.

Higher auto finance costs

Industry commentators are warning that the regulator’s activities could push up car financing costs for consumers. The CFPB has already tackled several major industry players over alleged discrimination involving higher interest payment terms for minority customers. The agency has reached more than $200 million in antidiscrimination agreements since 2013 with lenders including Ally Financial Inc. and American Honda Finance Corp., and around eight other large lenders are currently believed to be under federal investigation by the CFPB or the US Justice Department.

As result of its dealings with the CFPB, Honda’s captive lender made changes to its dealer mark-up arrangements, but at the same time also raised a less-negotiable component of its rates. Jared Allen, a spokesman for the industry group the National Automobile Dealers Association, has warned that the CFPB focus on auto loans “will invariably lead to many consumers paying more for auto financing.”