Oct. 1, 2014

CFPB to Increase Supervision of Nonbank Auto Finance Companies

As the automotive finance industry is keenly aware, a field hearing in Indianapolis on Sept. 18 by the Consumer Financial Protection Bureau (CFPB) made clear that the CFPB intends to take control of all supervisory responsibilities for “larger” nonbank auto finance companies. “Larger” is defined by the CFPB as companies that make or acquire 10,000 or more loans, leases, and refinanced loans per year. This definition covers about 90 percent of the nonbank market, according to the CFPB.

“This proposal is needed to level the playing field for banks and nonbanks in the auto lending market,” said CFPB Director Richard Cordray. “We already supervise the auto lending practices of banks with more than $10 billion in assets, and this step would extend our supervision to the larger nonbank companies as well.”1

Given the staffing models seen at many auto lenders, a limited number of personnel already have extensive responsibilities on a day-to-day basis. Finding time to create and maintain a formal compliance management program in addition to conducting ongoing testing and fair lending analysis might not be realistic. An auto lender desiring an acceptable compliance management program will find that it generally requires the following:

  • Board oversight and direction of the compliance program
  • Participation of senior management and direction for senior management to:
    • Establish, communicate, and enforce policy
    • Verify that a permanent, effective compliance function is in place
  • Establishment of an independent compliance function
  • Establishment of a compliance function staffed with adequate resources
  • Establishment of a compliance function charged with clearly defined responsibilities, including:
    • Establishing specific accountability requirements for compliance personnel and the staff of other departments
    • Advising management about regulatory changes
    • Providing guidance and education
    • Identifying and measuring compliance risk
    • Monitoring, testing, and reporting risk
    • Implementing a written, risk-based compliance plan
    • Conducting periodic, independent risk-based reviews of the compliance management function

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1 http://www.consumerfinance.gov/newsroom/prepared-remarks-of-cfpb-director-richard-cordray-at-the-auto-finance-field-hearing

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