A decade ago, the Consumer Financial Protection Bureau established the Automobile Financing Larger Participant Rule, which created regulatory oversight over providers that originated 10,000 contracts or more annually.

That threshold might be changing since the regulator now operates with half the budget it had previously.

On Thursday, a notice from the CFPB surfaced in the Federal Register involving an advance notice of proposed rulemaking (ANPR). The bureau is seeking public input as the regulator considers whether to change the rule to lift that annual origination level for oversight up to as high as 1.05 million contracts.

“The CFPB’s ANPR signals another potential major pivot and potential for contraction of its supervisory footprint — reopening the parameters that determine who qualifies as a ‘larger participant’ in the auto finance marketplace,” Hudson Cook partner Eric Johnson told Cherokee Media Group.

“The bureau provides three examples to increase the current threshold for aggregate annual originations — the largest of which would reduce the number of entities estimated to qualify as larger participants by more than 90%, from potentially 63 entities (for an estimated 94% of the market) to as few as five entities (representing an estimated 42% of the market),” Johnson continued.

“This could represent a dramatic and significant recalibration that could roll back oversight over smaller auto creditors that previously fell within its scope of supervision,” added Johnson, who is among the expert speakers scheduled to appear during Used Car Week, which is set to Nov. 17-20 at the Red Rock Resort in Las Vegas.

The Federal Register entry included an explanation for why the CFPB is considering this significant change.

“The bureau is concerned that the benefits of supervisory authority over nonbank covered persons with at least 10,000 aggregate annual originations may not justify the costs of increased compliance burdens for many entities that are considered larger participants under the current test,” the CFPB said.

“The bureau is particularly concerned that smaller entities who now qualify as larger participants are being disproportionately impacted by the current threshold,” the regulator continued. “The bureau is also concerned that the number of larger participants in the automobile financing market subject to supervision may be too broad and is potentially diverting limited bureau resources to determine who is a larger participant and whether an entity should be examined in a particular year. Finally, the Bureau notes that it has not evaluated whether changes in the automobile financing market call for updating the test to define larger participants since it published the Automobile Financing Larger Participant Rule ten years ago.

“The bureau therefore seeks comment on the topics and questions listed below in light of the bureau’s intent to propose amending the test to define larger participants in the automobile financing market,” the CFPB went on to say.

Should that threshold be lifted to 550,000, the CFPB estimated that 11 nonbank entities would qualify as larger participants and the updated rule would cover approximately 66% of originations.

If the threshold moved to 300,000, the bureau estimated that 17 nonbanks would qualify as larger participants and the updated rule would cover approximately 79% of originations.

Should the threshold be moved all the way to 1.05 million contracts annually, the move would cover only five auto-finance providers and involve only 42% of annual originations, mostly in the prime space, according to the CFPB.

19 questions from the CFPB

To help the bureau craft its modification, it’s asking the industry to consider 19 questions, including:

  1. Is 10,000 aggregate annual originations an appropriate threshold for determining which entities should be considered larger participants in the automobile financing market? If not, what type of threshold would be more appropriate and why?
  2. How would consumers be impacted by a potential increase in the threshold? Submissions of data related to the benefits or costs to consumers of the current rule and any particular change to the threshold are encouraged.
  3. How would changing the current threshold for larger participants alter the behavior of participants in the automobile financing market? How would these changes benefit or harm consumers and participants? Would those changes in behavior have impacts beyond this specific market?
  4. How would changing the current threshold for larger participants affect the bureau’s ability to address potential market failures in the automobile financing market and related areas?
  5. What are the costs to covered entities that are specific to the Bureau’s supervisory authority for larger participants in the automobile financing market? Specific figures as to staffing, staff time, and other resources are encouraged. How often are these costs incurred for larger participants under the current rule who are close to the current threshold for being larger participants?
  6. What are the costs to covered persons that are not specific to the Bureau’s supervisory authority, but are specific to being a larger participant in the automobile financing market? For instance, are there costs of monitoring status as a large participant or costs related to complying with relevant Federal statutes and regulations beyond what the firm would find reasonable absent the possibility of supervision?
  7. Are there costs to covered persons from the current larger participant rule that specifically apply to firms whose aggregate annual originations are lower, but close to, the threshold?
  8. Are there costs or benefits to consumers, including rural consumers, servicemembers, or veterans, of raising the larger participant threshold?
  9. Do small business concerns, as defined by the Small Business Administration, or other smaller- or mid-size entities qualify as larger participants under the current threshold in the automobile financing market? Do these entities incur costs of compliance with their larger participant status that are not in proportion to their size relative to other larger participants in the automobile financing market?
  10. Should the bureau’s test for defining larger participants in the automobile financing market account for the Small Business Administration’s size standards? If so, how?
  11. Are there significant recordkeeping requirements that would be reduced by raising the larger participant threshold?
  12. What other specific costs or benefits, not mentioned above, would a change in the larger participant threshold have for consumers and covered persons?
  13. In addition to data from the Economic Census or Velocity data, what sources of data, if any, are available that can reliably inform estimates of the current size of the firms in the automobile financing market; the participation in the market by nonbanks, banks, and credit unions; and the number of firms that qualify as larger participants?
  14. Should the bureau reconsider the threshold for aggregate annual originations to qualify as a larger participant in the automobile financing market?
  15. What threshold and number of participants allows the bureau to effectively focus on the largest participants and efficiently use its resources?
  16. Should the bureau consider separate thresholds for each type of participant in this market, i.e., captives, specialty finance, and BHPH finance companies to capture the largest participants of each type?
  17. Should the threshold ensure that the Bureau’s supervisory authority covers a mix of entity types (captives, specialty finance, and BHPH finance companies) and both the prime and subprime markets? If so, what is the appropriate mix? Or should supervision focus on the automobile financing companies that produce the largest number of originations, which are currently primarily captive nonbanks who originate prime loans?
  18. Among entities above the current threshold, how do the compliance costs and other costs imposed by larger participant status vary by:
  19. The type of nonbank entity
    b. Number of originations
    c. The share of the entity’s lease versus loan originations
    d. Characteristics of the loan or lease?
  20. Among entities above the current threshold, how do the risks, costs, or benefits to consumers of a potential increase in the threshold vary by:
  21. The type of nonbank entity
    b. Number of originations
    c. Whether the consumer took out a lease or a loan
    d. Characteristics of the loan or lease?