While a pair of industry associations indicated they weren’t blindsided when the Consumer Financial Protection Bureau released its final larger participant rule this week, an attorney with more than 30 years of experience cautioned finance company executives about not ignoring an important portion of what the CFPB emphasized.

Along with the National Automotive Finance Association and the American Financial Services Association, SubPrime Auto Finance News also reached out to David Silverman, who operates his own firm in Englewood, Colo., served two terms on the board of directors for the National Association of Retail Collection Attorneys (NARCA) and was founding president of the Colorado Creditor Bar Association.

“It’s great to finally have clarity of the rules of the game, taking much of the guesswork out of doing business,” said Silverman, an attorney since 1982.

Currently, the bureau supervises auto financing at the largest banks and credit unions. This rule extends that supervision to any nonbank auto finance company that makes, acquires or refinances 10,000 or more loans or leases in a year.

Under the rule, those companies will be considered “larger participants,” and the bureau may oversee their activity to ensure they are complying with federal consumer financial laws, including the Equal Credit Opportunity Act, the Truth in Lending Act, the Consumer Leasing Act, and the Dodd-Frank Wall Street Reform and Consumer Protection Act’s (Dodd-Frank Act) prohibition on unfair, deceptive, or abusive acts or practices.

Under this final rule, which was proposed last September, the bureau estimates that it will have authority to supervise about 34 of the largest nonbank auto finance companies and their affiliated companies that engage in auto financing.

To coincide with this new authority, the bureau updated its Supervisory and Examination Manual to provide guidance on how the CFPB will monitor the bank and nonbank auto finance companies that it supervises.

“While it’s great to now know the rules, do not ignore the examination procedures,” Silverman said. “Following these procedures can give an organization of every size, not just the defined larger participants a huge competitive advantage because it’s analogous to the teacher publishing test questions before test day.

“This principal applies to every business in the automobile lifecycle from lead generation to default and recoveries and all phases in between,” he went on say.

The CFPB indicated rule will take effect 60 days after publication in the Federal Register.

“The large participant rule was not a surprise to the industry. It was very similar to what the CFPB announced as the proposed rule,” said NAF Association executive director Jack Tracey, who welcomed Jeffrey Langer, assistant director, office of installment and liquidity lending markets at the CFPB, during the organization’s annual conference last month in Plano, Texas.

“The CFPB has a history of defining its supervision over large segments of each market they oversee, so the ruling is not a surprise to the industry,” Tracey continued in a message to SubPrime Auto Finance News. “Actually it probably good that the waiting is over. The auto financing industry has been dealing with the CFPB now for the past few years and I don’t see any additional concerns for them now that the ruling has been finalized.

“The large players already knew who they were after the proposed rulemaking was announced and they have been preparing themselves for the supervision,” he went on to say.

AFSA president and chief executive officer Chris Stinebert said in a statement to SubPrime Auto Finance News that the bureau’s final rule arrived this week “as anticipated.”

Stinebert surmised that the CFPB only made “minor changes” to its original proposal to define larger participants in nonbank auto finance.

“The CFPB’s rule retained its original transaction threshold, meaning that nonbank auto finance companies that make, acquire, or refinance 10,000 or more loans or leases in a year will come under CFPB supervision and enforcement,” he said.

“At AFSA’s recommendation, the CFPB broadened the definition of asset-backed securities to ensure that they are excluded from the 10,000 transaction threshold,” Stinebert continued. “In addition, the CFPB modified the definition of refinancing for the purpose of the threshold. Specifically, the Bureau clarified that a refinancing must be secured by an automobile to be included in the definition.

“Basically, the final rule remains largely unchanged regarding auto leasing,” he went on to say.

No matter how often or significantly the CFPB or any other federal or state regulator modifies rules that govern auto financing, Tracey emphasized the impact makes the compliance certification program the NAF Association offers that much more valuable.

Broken up into four modules — two in-person sessions and two online components — the NAF Association’s certification program gives finance company managers the chance to learn foundational concepts and compliance strategies in a law-school-like setting.

“Everyone in the auto financing space, especially the large players, have to be sure that they have a good compliance management system in place with knowledgeable compliance people behind it to successfully deal with CFPB supervision,” Tracey said. 

“The NAF Association has committed itself to assisting the industry in its ongoing dealings with the CFPB by developing education and training programs,” he continued. “We’ve had the Consumer Credit Compliance Certification Program in place for the past 18 months and we’ve just announced online training modules for auto finance underwriters and collectors. 

“This new program should help our finance company members equip their front line people with the ability to be knowledgeable about compliance and help them to apply the knowledge when dealing with consumers,” Tracey went on to say.

For more information about the compliance certification program, go to www.nafassociation.com or contact Tracey directly at jtracey@nafassociation.com.