On February 23, 2023, the CFPB announced in a blog post that it had issued orders to nine large auto lenders requesting information about their auto lending portfolios. The orders, which the CFPB says were sent to a cross-section of the auto finance market, represent the latest action taken by the Bureau in its effort to build a new data set that gives better insight into market trends.
The sample order published by the CFPB on its website states that it is a market-monitoring order, and not a supervisory order. The CFPB has authority to issue both under the Dodd Frank Act (“Dodd-Frank”). According to the order, it “is intended to be used for monitoring for risks to consumers in the offering or provision of consumer financial products or services, including developments in markets for such products or services.” Compliance is mandatory pursuant to Section 1022(c)(4)(B)(ii) of Dodd-Frank.
The requests within the order ask for detailed loan level data regarding originations and servicing from January 1, 2018 through December 31, 2022. The level of detail requested is significant. For example, the originations section asks for 23 different categories of data (plus sub-categories) regarding vehicle pricing and loan terms and another 23 categories of data regarding the dealer, lender, and borrower(s). The servicing section includes, among other requests, a request for 28 different data categories regarding repossessions and voluntary surrenders.
In November 2022, the CFPB announced it was seeking public comment to help develop a better data set to more effectively monitor the auto finance market. At that time, the Bureau noted that, despite the size of the auto finance market, the data it possesses lacks the level of granularity it needs to provide deeper insight into patterns in lending and risk. (The Bureau indicated that the auto finance market is on pace to surpass student loans as the second-largest consumer debt category sometime this year.) The CFPB has been collecting public input and held an auto finance data stakeholder event in December 2022 with market participants, fellow regulatory agencies, other Federal Reserve officials, market analysts, and consumer researchers and advocates to gather input on the current data landscape. According to the Bureau, three areas of focus have emerged from these discussions:
- Lending Channel Differences. Data is not generally broken down by whether the consumer secures financing for the purchase of the vehicle directly from a lender or the dealer arranges financing for the purchaser, making it difficult to analyze differences between direct and indirect auto loans.
- Data Granularity, Consistency, and Quality. Variations within existing data, the lack of a centralized data source, and the cost and burden of combining data sets make it difficult to analyze the existing data. For example, data providers may use different credit score cutoff points when defining credit score tiers (superprime, prime, subprime, and deep subprime), impeding analysis.
- Loan Performance Trends. Stakeholders have pointed to a need for more consistent and granular data on delinquency, default, and repossession trends, including the correlation between delinquency and geography, credit score, and income and timelines for repossession after default.
The blog post announcing the issuance of the orders highlights the substantial rise in car prices, and, flowing from that, the substantial increases in loan amounts, monthly payments, and delinquencies, especially among low-income consumers and those with subprime credit scores. We have discussed other CFPB blog posts highlighting these concerns here and here.
Some of the industry comments received in response to the initial request for public comment in November 2022 regarding the data set focused on the burden in gathering and reporting data, especially for smaller credit unions. A coalition of industry trade groups, including the American Financial Services Association and American Bankers Association, has also pointed out that a Request for Information, and not a press release, would have been the appropriate method for launching this initiative and requesting public comment.
Last week’s orders are just the latest in the use of market monitoring orders by CFPB Director Rohit Chopra to collect information regarding a variety of products. The CFPB sent orders to six technology platforms offering payment services in October 2021 and to five companies that offer buy-now-pay-later (“BNPL”) products in December 2021. These orders usually precede agency action, such as the issuance of the CFPB’s report on BNPL, “Buy Now, Pay Later: Market trends and consumer impacts,” which was issued in September 2022. We expect the Bureau to issue a similar report on market trends, with a particular focus on the subprime and deep subprime market segments, after it receives and processes data responsive to the orders.