The CFPB has issued a proposal to supervise nonbank companies that qualify as “larger participants of a market for automobile financing.”  Comments on the proposal will be due 60 days after its publication in the Federal Register.

The proposal is based on the CFPB’s authority to supervise nonbank entities considered to be “a larger participant of a market for other consumer financial products or services.” Nonbank larger participants would include specialty finance companies, “captive” finance companies, and “Buy Here Pay Here” finance companies.

The proposal defines as “larger participants” nonbank entities that engage in “automobile financing” that have at least 10,000 aggregate annual originations.  An entity’s “annual originations” is calculated by adding the following transactions for the preceding calendar year: (1) credit granted for the purpose of purchasing an automobile, refinancings of such credit obligations and any subsequent refinancings thereof; (2) purchases or acquisitions of such credit obligations (including refinancings); and (3) automobile leases and purchases or acquisitions of automobile leases.

Ballard Spahr attorney Peter Cubita notes that “the CFPB’s proposal also would define certain automobile leasing activity as a financial product or service, thereby effectively expanding the statutory definition of a ‘financial product or service’ as it relates to a personal property lease.”  Peter is one of the nation’s leading consumer financial services attorneys with extensive experience in auto finance and leasing.   He recently joined our Consumer Financial Services Group as of counsel in the firm’s New York office.

Auto finance companies that qualify as larger participants will be subject to examination by the CFPB for federal law compliance once a final rule becomes effective.  On September 30, 2014, Ballard Spahr attorneys will hold a webinar, “Auto Finance I: How the CFPB’s Larger Participant Rule for the Auto Finance Market Will Change the Game for Nonbank Auto Finance Companies,” from 12 p.m. to 1 p.m. ET.  More information on the webinar and a link to register are available here.

For more on the proposal, see our legal alert.