In the handful of years since it was established by the Dodd-Frank Act, the Consumer Financial Protection Bureau (CFPB) has ushered in a new era of regulatory scrutiny, and with it, an urgent need for compliance awareness among the industries it oversees. For the vehicle finance industry, this means applying the Bureau’s requirements, keeping tabs on frequent legislative actions, and being responsive to the evolving regulatory environment when implementing a compliance management system.
There is no denying that the vehicle finance industry is experiencing robust growth: In 2014 alone, 16.5 million new vehicles were sold, and 2015 is expected to be an even better year. Reports from various sources estimate that around 30% of these consumers are “subprime buyers” — defined as those with credit scores below 640.
A New Interest
The CFPB has signaled its interest in auto lending and has been especially keen to ensure fair lending in the context of dealer markups and the Equal Credit Opportunity Act (ECOA). It’s not surprising, then, that the Bureau would also be interested in ECOA’s various notice requirements, including adverse action notices.
Given the pace of auto lending, the CFPB’s interest in adverse action notices makes sense. More lending means more applications — which, in turn, means an increased number of adverse action notices, as not all prospective borrowers will qualify for loans. WALZ Group processes adverse action notices for some clients and has seen a significant increase in the number of notices sent over the last several years. For example, one clients’ volume of adverse action notices to date has more than doubled since 2012.
An increase in adverse action notices could result in more violations for sending notices that are out of compliance, possibly resulting in more harm to consumers. The CFPB has already signaled its interest in this area by including it in a recent edition of its periodic publication Supervisory Highlights; a public enforcement action shortly may be the next shoe to drop.
A New Focus
As is evident by its past regulatory activity, the Bureau tends to focus where there is fast growth because of the increased potential for harm. Vehicle finance companies would be wise to ensure their compliance with ECOA in general and the requirements for adverse action notices in particular, in order to minimize their potential for a future enforcement action.
So, two questions remain: Are you compliant? And how do you know?
Download your copy of WALZ Group’s Compliance Self-Assessment to help you to clarify your priorities and see how you measure up against some of the most pressing regulatory issues facing the vehicle finance industry today.
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About WALZ
Trusted by the nation’s top vehicle finance companies, WALZ is the leader in operationalizing compliance for businesses in highly regulated industries. Providing regulatory monitoring, data and document management, automated compliance checks, and fulfillment and tracking of critical communications, WALZ helps clients successfully navigate the quickly evolving compliance landscape.