The CFPB recently proposed overseeing larger nonbank auto finance companies for the first time at the federal level. The Dodd-Frank Act created the larger participants “pin hole” through which the CFPB intends to drive a truck. The proposed rule would generally allow the CFPB to supervise nonbank auto finance companies that make, acquire, or refinance 10,000 or more loans or leases in a year. According to the CFPB, there are perhaps 38 of such companies controlling about 90 percent of nonbank auto loans and leases per year, affecting 6.8 million customers.
So, what’s the big deal for the smaller participants in this industry?
The big deal is that what happens in Washington to the larger participants tends to eventually trickle down to the smaller companies in the form of the CFPB’s broad UDAAP—unfair, deceptive or abusive acts or practices—power. Personal finance companies financing automobiles for local dealerships should take note.
To reiterate a recent post— auto finance is in the CFPB cross-hairs, and federal scrutiny is evident here in Alabama. Last week, five former Serra Nissan (an Alabama-based auto sales company) employees were indicted and arrested on charges that they falsified documents in order to increase the number of cars sold and loans closed—allegedly defrauding banks by failing to present truthful information during the vehicle financing process. In a press release earlier this month, U.S. Attorney Joyce Vance said, “This type of fraud is the auto-industry equivalent of the mortgage fraud that contributed to the financial meltdown, and could threaten the security of our financial markets.”
FBI Special Agent Richard Schwein stated, “This case is significant to the FBI not merely because of the loss amounts but also because of the many victims left in the wake of this scheme who had trusted the defendants with handling their vehicle financing.”
The government’s indictment is based upon the submission of fraudulent information to auto financing companies, aggravated identity theft through the use of a customer’s Alabama-issued personal identification card during the commission of bank and wire fraud, and conspiracy to commit those crimes.
And Veronica Hyman-Pillot, IRS Criminal Investigation Special Agent-in-Charge, further emphasized, “Today’s arrest clearly illustrates that individuals who engage in these types of illegal activities will be held accountable for their actions. These defendants clearly took advantage of the people in their community, as well as financial institutions. They manipulated the system and falsified documents with the intention of increasing profits at the expense of others.”
Clearly the Justice Department, the IRS and the CFPB do not intend to allow the auto finance industry to drive down the path of the mortgage loan industry.