The Consumer Financial Protection Bureau’s proposal to subject nonbank auto finance companies to greater federal oversight presents a “sea change” for the industry, according to Ballard Spahr partner Alan S. Kaplinsky, who leads the firm's Consumer Financial Services Group. The new regulations mean that affected companies will be subjected to federal examinations “on a regular basis,” and will need to establish systems to monitor their compliance.

Christopher J. Willis, a partner who chairs Ballard's Fair Lending Task Force, agrees that compliance costs will increase for the lenders once the proposal is finalized. However, many nonbank auto lenders may already have begun funding the necessary management systems in anticipation of the proposal.

The CFPB already supervises large banks—those with more than $10 billion in assets—that make auto loans, but not nonbank auto finance companies. Under a provision in the Dodd-Frank Act (PL 111-203) the bureau is proposing to expand its authority to supervise certain nonbanks determined by the agency to be "larger participants" in consumer financial product and service markets.

Nonbanks that conduct automobile financing activities such as granting credit for purchasing an automobile, refinancing an auto loan, or issuing automobile leases would be covered under the proposal. Those that make, acquire, or refinance 10,000 or more loans or leases in a year would be considered to be a "larger participant."

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