The Consumer Financial Protection Bureau has published its larger participant rule, which will allow the agency to supervise larger nonbank auto finance companies for the first time, according to a CFPB press release.
The new rule extends CFPB supervision to nonbank auto finance companies that make, acquire, or refinance 10,000 or more loans or leases in a year, according to the release. Under the rule, those companies are considered “larger participants.” The CFPB already had jursidiction over larger banks, defined as those with more than $10 billion in assets. The Federal Reserve regulates smaller banks.
Under the final rule, the CFPB estimates that it will have authority to supervise about 34 of the largest nonbank auto finance companies and their affiliated companies that engage in auto financing.
“These companies together originate around 90 percent of nonbank auto loans and leases, and in 2013 provided financing to approximately 6.8 million consumers,” the release reads. “The final rule also defines additional automobile leasing activities for coverage by certain consumer protections of the Dodd-Frank Act.”
The Bureau may now oversee the companies’ 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 prohibition on unfair, deceptive, or abusive acts or practices.
The proposed rule, which was announced in September 2014, was subject to a 60 day open comment period after it was published in the Federal Register on October 8, 2014. In the comment period, small businesses voiced their displeasure at being included under the rule.
In one letter representing a group of small businesses, Attorney John Redding, Partner at Buckley Sandler LLP proposed that the threshold for contracts which define companies as a larger participant be increased significantly. Separately, the American Financial Services Association, a lender group, also suggested a higher threshold.
“The Clients suggest that the Proposed Rule’s threshold be increased significantly from 10,000 aggregate annual originations,” Redding wrote. “For example, and as highlighted by the Bureau, adoption of a 50,000 aggregate annual originations threshold would still provide for supervision of the “17 very largest participants in the market, representing approximately 86% of market activity.”
However, the rule was finalized with only “minor changes,” according to the CFPB’s release.
“The final rule broadens the category of transactions involving asset-backed securities that are not counted toward the 10,000 transaction threshold,” the release reads. “It also makes a minor modification to the definition of refinancing for the purpose of the threshold.”
To coincide with the bureau’s increased authority, it has updated its Supervisory and Examination Manual to provide guidance on how the CFPB will monitor bank and nonbank auto finance companies that it now supervises. Examiners will be assessing potential risks to consumers and whether auto finance companies are complying with requirements of federal consumer financial law, according to the release.
Today’s rule will take effect 60 days after publication in the Federal Register.Like This Post