Consumer Finance Litigation

Beginning August 31, 2015, the CFPB will begin supervising nonbank auto finance companies pursuant to 12 C.F.R. 1090.108. The Final Rule provides that auto finance companies that qualify as "larger participants of a market for automobile financing" will be subject to the new regulation. The Dodd-Frank Act gave the CFPB supervisory authority over "larger participants" of certain markets for consumer financial products or services, as defined by the CFPB. See 12 U.S.C. 5514(a)(1)(B). In June 2015, the CFPB finalized its larger participant regulation as it relates to the automobile financing market. Currently, the CFPB already maintains supervisory authority over large banks and credit unions that participate in auto financing. However, the new regulation greatly expands the scope of its supervisory authority by including nonbank entities that are engaging in "automobile financing." Nonbank larger participants may include specialty finance companies, manufacturer "captive" finance companies, and "Buy Here Pay Here" (BHPH) finance companies. The new regulation provides that a nonbank covered person is a larger participant of the automobile financing market if that person has at least 10,000 aggregate annual originations. Specifically, the CFPB estimates that a threshold of 10,000 aggregate annual originations will bring within the Bureau's supervisory authority about 34 entities and their affiliated companies that engage in automobile financing. The CFPB estimated that these entities account for roughly 7% of all nonbank covered persons in the automobile financing market and are responsible for approximately 91% of the activity in the nonbank automobile financing market. Under the new regulation, "automobile financing" generally includes grants of credit for the purchase of an automobile, refinancings of such obligations (including any subsequent refinancing thereof) that are secured by a vehicle, automobile leases, and purchases or acquisitions of any of the foregoing obligations. Notably, the larger participant rule excludes certain auto dealers including those that are identified in section 1029(b)(2) and are predominantly engaged in the sale and servicing of motor vehicles, the leasing and servicing of motor vehicles, or both. Furthermore, typical "Buy-Here-Pay-Here" dealers would not be subject to the larger participant regulation as most are independently-owned entities that serve as the primary lender and receive payments directly from consumers.