In early April, Deputy Director Steven Antonakes of the Consumer Financial Protection Bureau delivered the keynote speech at a meeting of the Consumer Bankers Association. During his speech, he specifically targeted the auto finance industry, articulating the CFPB’s concern over dealer mark-up and comparing the practice to mortgage yield spread premiums. Deputy Director Antonakes stated:
“Another difficult area where we are working to mitigate harm to consumers and level the playing field is indirect auto lending. For some time now, we have expressed concern that discretionary pricing in auto finance, coupled with financial incentives to mark up interest rates – practices that are akin to the now-banned yield spread premiums in the mortgage market – create serious risks. Such risks include that consumers will receive different pricing based on prohibited characteristics such as race, ethnicity, and national origin.
We fully recognize that the issues here can be complex and that our authority generally reaches auto lenders but not auto dealers. This can pose difficulties in addressing these issues comprehensively. But it is nonetheless our responsibility to enforce the law.”
Director Antonakes concluded his remarks by explaining that the CFPB would be issuing a larger participant rule for the auto finance industry. Specifically, he explained, “[W]e will be moving forward with a proposal to expand our supervisory authority in this area beyond the larger banks to encompass the larger nonbank auto lenders also, providing more complete oversight over the lender side of this marketplace.”
Currently, the CFPB has statutory enforcement and supervisory authority over banks with at least $10 billion in assets, including their activities related to auto lending. Banks with under $10 billion in assets are subject to regulatory authority of their primary banking regulator, including the Office of the Comptroller of the Currency or the Federal Reserve Board. With regard to indirect lenders that are not banks, the CFPB has authority to the extent they are larger participants, with over $10 billion in assets. Any new larger participant rule for the auto finance industry would lower this $10 billion threshold with regard to auto lending activities. For example, in the student loan servicer market, the CFPB’s recently announced final rule defining larger participants will now capture servicers with an “account volume” exceeding $1 million.