The CFPB (Consumer Finance Protection Bureau) has now added non-bank automobile financing companies to the list of institutions it will be regulating. At least for now, the federal agency will have its hooks in only those which make over 10,000 loans or leases per year. This threshold, however, will mean new government regulation for the largest 34 of such companies, which collectively originate over 90% of the vehicle loans in the United States. Financing arms of foreign automobile manufacturers such as Volkswagen, Honda, Toyota and the traditional American “Big Three” (Ford, General Motors and Chrysler) will soon be affected. According to the CFPB there are another 500 or so smaller non-bank automobile lenders which will be exempt from new regulation which goes into effect in two months.
The CFB is a creature of the 2011 Dodd–Frank Wall Street Reform and Consumer Protection Act. Until now it has regulated debt collectors, securities dealers, credit unions, payday lenders and banks, but not vehicle lenders. The reason for the change seems to be this: apparently the independent government agency believes there is too much potential for abusive practices (especially against borrowers who lack good credit) in the mark-up of the loan interest rate from the time it starts with the auto financer’s banking affiliate to the time the consumer signs on the dotted line with the financing arm of the automobile dealer.
The amount of outstanding vehicle loans in this country is approaching a trillion dollars, third in volume to only home mortgages and student loans in terms of consumer finance.