Some of the country's largest auto lenders will face greater federal scrutiny due to concerns about racial discrimination in lending and illegal debt collection practices.
The Consumer Financial Protection Bureau wants the power to examine the books of the largest nonbank auto lenders in the U.S. The agency on Wednesday proposed a rule to oversee such auto finance companies for the first time at the federal level.
Regulators are concerned about discriminatory lending, the accuracy of consumer information that lenders report to credit bureaus, and the use of illegal debt collection practices by auto finance companies. Consumers have complained to the agency about vehicle repossessions occurring even when they are current on the loan, according to the CFPB.
“Many people depend on auto financing to pay for the car they need to get to work,” CFPB Director Richard Cordray announced in a statement. “Nonbank auto finance companies extend hundreds of billions of dollars in credit to American consumers, yet they have never been supervised at the federal level." Autos loans make up the third largest category of consumer debt, behind mortgages and student loans.
Underscoring the potential reach of new oversight, the agency also released a report on the supervisory actions it has taken against banks that finance auto loans. The CFPB has obtained $56 million in relief for up to 190,000 consumers who were the victims of discriminatory lending policies against African-American, Hispanic, and Asian and Pacific Islander borrowers. Those borrowers "paid more for their auto loans than similarly situated non-Hispanic white borrowers," the agency stated.
Last December, the CFPB and the Department of Justice ordered Ally Financial to pay $80 million in damages to approximately 235,000 minority auto loan borrowers harmed by discriminatory pricing. The company did not admit or deny any wrongdoing. Both General Motors and auto financier Santander Consumer USA disclosed that they are being investigated by the Justice Department over subprime lending.
The proposed rule would encompass approximately 38 auto finance companies that "originate around 90 percent of nonbank auto loans and leases, and in 2013 provided financing to approximately 6.8 million consumers," according to the CFPB.
If the oversight rule is finalized, companies with auto finance units including Toyota, Ford, Honda, and Nissan would fall under the agency's purview, according to the Wall Street Journal.
The CFPB will hold a field hearing on auto finance Thursday in Indianapolis.