CFPB to Supervise Non-Bank Auto Financing Companies: New Rule Also Broadens the Definition of a Consumer Financial Product or Service to Include Auto Leases

Sullivan & Cromwell LLP - June 19, 2015

On June 10, 2015, the Consumer Financial Protection Bureau (the “CFPB”) announced a final rule that extends the Bureau’s supervisory authority to dozens of large non-bank automobile financing companies and their affiliates, including specialty finance companies, manufacturer “captive” finance companies and “Buy Here Pay Here” finance companies.  Although non-bank auto financing companies, both large and small, have been  subject to CFPB rulemaking and enforcement jurisdiction since the Bureau’s establishment in July 2011, the final rule makes these large non-bank auto financing companies, which originate approximately 90 percent of non-bank auto loans and leases, subject to CFPB supervision, including regular CFPB examinations.  The final rule also extends the definition of a consumer “financial product or service” subject to CFPB jurisdiction to include certain auto leases that may not meet the existing definition.  Simultaneous with the final rule’s announcement, the CFPB announced updates to its Supervision and Enforcement Manual (the “Manual”) to provide guidance on how the CFPB will monitor bank and non-bank auto finance companies for potential risks to consumers and compliance with federal consumer financial law.

The rule and updates to the Manual are the latest in the CFPB’s ongoing efforts to regulate activity in the $900 billion direct and indirect automobile lending market.  The rule will increase compliance costs for the non-bank auto finance companies facing CFPB examinations for the first time, but level the playing field with their bank-affiliated competitors who are already subject to CFPB or banking agency supervision.