CFPB Director Proposes to Supervise "Captive" Auto Finance Companies

Auto Finance  •  CFPB  •  ECOA  •  Fair Lending / Fair Servicing

On September 18, CFPB Director Richard Cordray delivered remarks at a Field Hearing about CFPB’s latest proposed rule, which would allow it to begin regulating “captive” finance companies – those entities owned by automotive manufacturers “for the primary purpose of facilitating sales for their parent companies and associated dealers.”

In his remarks, Cordray noted that such nonbank auto finance companies extend hundreds of billions of dollars in credit to American consumers without federal oversight.  He proposed that the CFPB regulate only the “larger” of these auto finance companies, which he later defined as those that “enter into or otherwise acquire 10,000 or more loans, leases, and/or loan refinances per year.”  Cordray stated that the CFPB would then regulate “about 90 percent” of the nonbank auto finance market activity” and thereby “bring more accountability for about 6.8 million consumers who obtain financing from these companies each year.”

To justify the proposed expansion of regulatory authority, Cordray explained the following:

(1) all loans offered by auto finance companies should be marketed honestly and fairly:

(2) the expansion was necessary to “level the playing field for banks and nonbanks in the auto lending market” given that the CFPB already regulates the auto lending practices of banks with more than $10 billion in assets and “every auto lender” should be subject to the same regulations as a matter of fairness among competitors; and

(3) citing a March 13 Bulletin to indirect auto lenders about their responsibilities under ECOA, Cordray claimed oversight was necessary to prevent what he called “the silent pickpocket of discrimination.”

​The CFPB’s proposal follows its settlement earlier this year with Ally Bank related to its auto lending practices, which Cordray specifically referenced in his remarks, and comes just after the announcement that the DOJ is investigating GM for issues related to its origination of subprime auto loans.

The CFPB also issued a white paper explaining what Cordray called the “mechanics” of the CFPB’s approach to regulating auto finance companies, and the clear message in his remarks was that nonbank auto finance companies should prepare themselves for robust federal oversight coming soon.

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