The Consumer Financial Protection Bureau’s proposed new rule extending its jurisdiction to include “larger participant” nonbank auto lenders has some shortcomings, says Bill Himpler, executive vice president of the American Financial Services Association.
The rule defines “larger” auto lenders as those that make more than 10,000 auto loans and leases combined a year. That low threshold is problematic, Himpler says, because it incorporates not only big captive finance companies but also small lenders with tiny market share, which likely will see their compliance costs rise. The rule also leaves some very competitive participants in auto lending, such as medium-sized banks and credit unions, unaccounted for, he says, creating an unlevel playing field.
The proposed rule, announced by the CFPB last week, is subject to a 60-day public comment period.
Himpler discussed the rule with Automotive News Special Correspondent Jim Henry.
Do you have a list yet of lenders that would be included in the “10,000 loans and leases” standard?
We are trying to figure out exactly where the 10,000-transaction threshold starts. We’re in the process of gathering that right now.
You said last week many of them were “not large by any stretch of the imagination.”
From what I’ve seen, once you get past the top 30 [auto lenders], you’re talking less than one-half of 1 percent share. Past the top 40, and it’s closer to one-tenth of 1 percent or less. If you look at the top 100, it doesn’t take all that long to take it to something that -- for statistical purposes at least -- registers at 0.0 percent.
Ten thousand per year isn’t much. One top lender told me they do 7,000 in a day. Ten thousand is 800-some per month, or 200 per week. In terms of share, that hardly makes a blip.
Who regulates nonbank finance companies that aren’t regulated by the CFPB?
Finance companies are largely regulated by the states. Large bank holding companies are regulated, national banks are regulated, at the federal level. But finance companies traditionally have been regulated at the state level. They are licensed and regulated in each and every state in which they do business. The big captives, they’ve got 50-plus licenses -- I say more than 50, because they’re also licensed in U.S. territories.
What’s the problem for smaller institutions -- cost?
For the captives, we’re talking about some of the largest, multinational companies, with in-house legal departments that have been in place for decades. Taking somebody that small and calling them a “larger participant” -- the CFPB says they want to recognize the scalability of the smaller-sized institutions -- but all of a sudden, their legal costs go up exponentially.
In a consent order with U.S. Bank, the CFPB gave it the option to simply drop a loan program for military members, which the bank did. Is that an option for a lender that doesn’t want CFPB supervision?
For some of the largest banks, the amount that vehicle finance represents in their total portfolio is single-digit percentage points in their overall business. For the captives, of course, it’s 100 percent; that’s their whole business. It’s not like they’re going to go into business doing something else. But for the smaller guys, some of them are exclusively auto. Some do some other things, but they’re still 75 to 85 percent vehicle finance. It’s not a small portion of their business; it’s the lion’s share of their business.
What about credit unions? Except for the top few, with assets over $10 billion, are they included in the CFPB’s jurisdiction?
The CFPB has jurisdiction over banks -- maybe I should say depositary institutions -- [with assets] over $10 billion. That already includes the top 3 credit unions. For payday lenders, mortgage institutions, there were larger participant rules for those types of lending, and now there’s a larger participant rule in autos. But this does not apply to medium-sized banks or credit unions with less than $10 billion. There are a number of banks and credit unions in that category that provide a lot of competition to the [auto lending] set that will not be covered.
Does that leave an unlevel field?
If they want to level the playing field, they should do it, as we said, regardless of the [lender’s] business model or charter. AFSA believes whatever the threshold is, -- and I think 10,000 transactions is too low -- it should incorporate all of the industry.