[Federal Register Volume 90, Number 151 (Friday, August 8, 2025)]
[Proposed Rules]
[Pages 38415-38418]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-15089]
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CONSUMER FINANCIAL PROTECTION BUREAU
12 CFR Part 1090
[Docket No. CFPB-2025-0029]
RIN 3170-AB50
Defining Larger Participants of the Automobile Financing Market
AGENCY: Consumer Financial Protection Bureau.
ACTION: Advance notice of proposed rulemaking.
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SUMMARY: The Consumer Financial Protection Bureau (CFPB or Bureau) is
seeking information to assist it in considering whether to propose a
rule to amend the test to define larger participants in the automobile
financing market established by the Bureau's Defining Larger
Participants of the Automobile Financing Market and Defining Certain
Automobile Leasing Activity as a Financial Product or Service Final
Rule published on June 30, 2015 (Automobile Financing Larger
Participant Rule).
DATES: Comments must be received on or before September 22, 2025.
ADDRESSES: You may submit responsive information and other comments,
identified by Docket No. CFPB-2025-0029, by any of the following
methods:
Federal eRulemaking Portal: https://www.regulations.gov.
Follow the instructions for submitting comments.
Email: [email protected]. Include
Docket No. CFPB-2025-0029 in the subject line of the message.
Mail/Hand Delivery/Courier: Comment Intake--Defining
Larger Participants of the Automobile Financing Market 2025, c/o Legal
Division Docket Manager, Consumer Financial Protection Bureau, 1700 G
Street NW, Washington, DC 20552.
Instructions: The CFPB encourages the early submission of comments.
All submissions should include the agency name and docket number.
Additionally, where the Bureau has asked for specific comment on a
topic, commenters should seek to highlight the topic to which their
comment is applicable. Because paper mail is subject to delay,
commenters are encouraged to submit comments electronically. In
general, all comments received will be posted without change to https://www.regulations.gov. All submissions, including attachments and other
supporting materials, will become part of the public record and subject
to public disclosure. Proprietary information or sensitive personal
[[Page 38416]]
information, such as account numbers or Social Security numbers, or
names of other individuals, should not be included. Submissions will
not be edited to remove any identifying or contact information.
FOR FURTHER INFORMATION CONTACT: Dave Gettler, Paralegal Specialist,
Office of Regulations, at 202-435-7700. If you require this document in
an alternative electronic format, please contact
[email protected].
SUPPLEMENTARY INFORMATION: The Bureau is seeking information in order
to consider whether to propose a rule to amend the test to define
larger participants in the automobile financing market. Currently, a
nonbank covered person is a larger participant of the automobile
financing market if the nonbank covered person has at least 10,000
aggregate annual originations. The Bureau is concerned that the
benefits of the current threshold may not justify the compliance
burdens for many of the entities that are currently considered larger
participants in this market, and that the current threshold may be
diverting limited Bureau resources to determine who among the universe
of providers may be subject to the Bureau's supervisory authority and
whether these providers should be examined in a particular year. To
address this problem, the Bureau could amend the test by raising the
threshold. There are a range of thresholds the Bureau could propose. To
facilitate comment, the Bureau provides three examples further below.
In the example with the largest increase, raising the threshold to
1,050,000 aggregate annual originations would reduce the number of
entities estimated to qualify as larger participants by more than 90
percent, from 63 entities (who account for an estimated 94 percent of
market activity) to five entities (who account for an estimated 42
percent of market activity).
I. Background
Section 1024 of the CFPA,\1\ codified at 12 U.S.C. 5514, gives the
Bureau supervisory authority over all nonbank covered persons \2\
offering or providing three enumerated types of consumer financial
products or services: (1) origination, brokerage, or servicing of
consumer loans secured by real estate, and related mortgage loan
modification or foreclosure relief services; (2) private education
loans; and (3) payday loans.\3\ The Bureau also has supervisory
authority over ``larger participant[s] of a market for other consumer
financial products or services, as defined by rule[s]'' the CFPB
issues.\4\ To date, the Bureau has issued six rules defining larger
participants of markets for consumer financial products and services
for purposes of CFPA section 1024(a)(1)(B).\5\
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\1\ Consumer Financial Protection Act of 2010, title X of the
Dodd-Frank Wall Street Reform and Consumer Protection Act, Public
Law 111-203, 124 Stat. 1376, 1955 (2010) (hereinafter CFPA).
\2\ The provisions of 12 U.S.C. 5514 apply to certain categories
of covered persons, described in section (a)(1), and expressly
excludes from coverage persons described in 12 U.S.C. 5515(a) (very
large insured depository institutions and credit unions and their
affiliates) or 5516(a) (other insured depository institutions and
credit unions). The term ``covered person'' means ``(A) any person
that engages in offering or providing a consumer financial product
or service; and (B) any affiliate of a person described [in (A)] if
such affiliate acts as a service provider to such person.'' 12
U.S.C. 5481(6).
\3\ 12 U.S.C. 5514(a)(1)(A), (D), (E).
\4\ 12 U.S.C. 5514(a)(1)(B), (a)(2); see also 12 U.S.C. 5481(5)
(defining ``consumer financial product or service'').
\5\ These six rules defined larger participants of markets for
consumer reporting, 77 FR 42874 (July 20, 2012) (Consumer Reporting
Rule), consumer debt collection, 77 FR 65775 (Oct. 31, 2012)
(Consumer Debt Collection Rule), student loan servicing, 78 FR 73383
(Dec. 6, 2013) (Student Loan Servicing Rule), international money
transfers, 79 FR 56631 (Sept. 23, 2014) (International Money
Transfer Rule), automobile financing, 80 FR 37496 (June 30, 2015)
(Automobile Financing Rule), and general-use digital consumer
payment applications, 89 FR 99582 (Dec. 10, 2024) (General-Use
Digital Payment Applications Rule). The Bureau is issuing advance
notices of proposed rulemakings to reconsider the test for defining
larger participants in the consumer reporting, consumer debt
collection, international money transfer, and automobile financing
markets. The Bureau will continue to assess whether it is
appropriate to reconsider the test for the student loan servicing
market. The General-Use Digital Payment Applications Rule was made
ineffective by a joint resolution of disapproval by Congress under
the Congressional Review Act. S.J. Res. 28--119th Congress (2025-
2026), Public Law 119-11; see also 5 U.S.C. 801 et seq.
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The Bureau published the Automobile Financing Larger Participant
Rule on June 30, 2015. The final rule defined a market for automobile
financing and established that nonbank covered persons with at least
10,000 aggregate annual originations would be considered larger
participants in this market. The final rule defined ``annual
originations'' to mean the sum of the following transactions for the
preceding calendar year: credit granted for the purchase of an
automobile; refinancings of such obligations (and any subsequent
refinancings thereof) that are secured by an automobile; automobile
leases; and purchases or acquisitions of any of the foregoing
obligations.
II. Background on the Automobile Financing Market
Autos have become indispensable for most working individuals. Autos
are commonly used to commute to work, or for other purposes that are
important to consumers, such as transportation to school or healthcare
providers, travel, and recreation.
Americans owed more than $1.6 trillion on auto loans through the
first quarter of 2025, with more than 100 million active auto finance
accounts outstanding.\6\
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\6\ See Federal Reserve Bank of New York, Household Debt and
Credit Report, https://www.newyorkfed.org/microeconomics/hhdc/ (last
visited May 22, 2025).
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Auto credit is provided through both direct and indirect channels,
creating different dynamics for consumers and industry participants. In
the direct lending channel, a consumer seeks credit directly from the
nonbank or depository institution financing source, whereas in the
indirect lending channel, the dealer typically enters into a retail
installment sales contract that it then sells to a third-party nonbank
finance company, or a depository institution engaged in indirect
lending.
Most consumers who finance the purchase of a vehicle use the
indirect channel. Depository institutions and credit unions have an
advantage in the direct lending space because these entities often have
a pre-existing relationship with consumers and a lower cost of funds,
which enables them to offer competitive rates, but these entities also
operate heavily in the indirect lending space. Nonbanks, other than Buy
Here Pay Here entities (discussed below), are also active in the
indirect channel.
With indirect lending, dealers rather than consumers typically
select the lender that will provide the financing. Upon completion of
the vehicle selection process, the dealer typically collects basic
information regarding the applicant and uses an automated system to
forward that information to prospective indirect auto lenders. After
evaluating the applicant, indirect auto lenders may provide the dealer
with purchase eligibility criteria or stipulations.
The dealer typically selects the lender to whom it will assign the
retail installment sales contract. The dealer is typically compensated
for arranging indirect financing. In the indirect model, the indirect
lender typically becomes responsible for servicing the contract, and
the consumer will then make payments to the indirect lender.
Leases can also be obtained through direct or indirect channels.
With an auto lease from a dealer, finance sources provide the dealer
with the relevant terms of a lease. In a lease transaction, a finance
source will also quote a residual value, which is the projected
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market value of the vehicle at the end of the lease. If the consumer
opts for a lease, then the origination process continues in a manner
similar to the loan process.
III. The Bureau's 2015 Larger Participant Rule Defining the Market
The Bureau published the Automobile Financing Larger Participant
Rule on June 30, 2015. The final rule defined a market for automobile
financing that covers specific activities and set forth a test to
determine whether a nonbank covered person is a larger participant of
that market. It established that nonbank covered persons with at least
10,000 aggregate annual originations would be considered larger
participants in this market.
The automobile financing market identified by the Automobile
Financing Larger Participant Rule includes the following types of
nonbank covered persons: (1) specialty finance companies; (2)
``captive'' nonbanks (commonly referred to as ``captives''); and (3)
Buy Here Pay Here (BHPH) finance companies.
Specialty financing companies serve consumers in specialized
markets. Many of these companies focus on providing financing to
subprime borrowers who tend to have past credit problems, lower income,
or limited credit histories, which prevent them from being able to
obtain financing elsewhere.
Generally, captives are subsidiary finance companies owned by auto
manufacturers. They provide consumers with financing and leases for the
primary purpose of facilitating their parent companies' and associated
franchised dealers' auto sales.
BHPH finance companies are typically associated with certain
dealers. With some exceptions, BHPH dealers traditionally focus on
subprime and deep subprime borrowers, and typically retain retail
installment contracts or assign them to an affiliated finance company.
Some very large lenders who may be categorized as BHPH lenders engage
in prime lending, while the majority of the BHPH space is focused on
consumers with subprime credit scores.
IV. Larger Participant Test in the 2015 Rule
Under the Automobile Financing Larger Participant Rule, a nonbank
covered person qualifies as a larger participant in this market if it
has at least 10,000 aggregate annual originations. Based on the
Bureau's analysis of data from Experian Velocity\SM\ for the period of
February 1, 2024, to January 31, 2025, approximately 63 entities met
this test, which provides an independent basis for Bureau supervisory
authority, regardless of whether these persons qualify under a separate
authority described above.\7\ The 63 entities include all three
categories of nonbanks: specialty finance companies, captives, and BHPH
finance companies. This covers an estimated 17.4 million consumer
transactions, or approximately 94 percent of annual originations.
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\7\ Experian Velocity\SM\ is a statistical database with
deidentified information on vehicles and vehicle loans. The data are
drawn from multiple sources, such as, but not limited to credit
records, vehicle titles and registrations, auto lenders, and auto
manufacturers. Importantly, the data include information on vehicle
values and borrower credit scores for vehicles purchased with a
loan. This analysis follows the parameters used in the Automobile
Financing Larger Participant rule: (1) it includes both loans and
leases; (2) transactions with no lender named were excluded; (3)
entities with fewer than 360 loans originated were excluded; (4)
loans listed as ``other'' lenders were excluded; and (5) BHPH dealer
loans were excluded unless assigned to a BHPH finance lender. Any
separate entries for the same entity have been combined.
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The market for automobile financing provided by nonbank covered
persons is somewhat concentrated. According to the same data, 18
entities conducted approximately 80 percent of originations.
V. Concerns
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.\8\ The Bureau is particularly concerned that smaller
entities who now qualify as larger participants are being
disproportionately impacted by the current threshold. 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.
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\8\ For a discussion of compliance burdens, see generally
section IV.B of the Automobile Financing Larger Participant Rule
(describing costs of increased compliance, costs of supervisory
activity, and costs of assessing larger participant status). 80 FR
37496 at 37516-21.
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The Bureau has not previously raised the threshold for the test to
define larger participants in the automobile financing market. By doing
so, the Bureau could focus its supervisory oversight on the most active
market participants that interact with very large numbers of consumers.
For example, if the Bureau raises the threshold from 10,000 to 550,000
aggregate annual originations, the Bureau preliminarily estimates that
11 nonbank entities would qualify as larger participants and that the
updated rule would cover approximately 66 percent of originations. At
present, this would include nine nonbank entities that focus on prime
lending and two entities that engage in at least some subprime lending.
Another option would be to raise the threshold to 300,000 aggregate
annual originations. Under this threshold, the Bureau preliminarily
estimates that 17 nonbanks would qualify as larger participants, and
the updated rule would cover approximately 79 percent of originations.
At present, this would include 12 entities that primarily engage in
prime lending and five entities that engage in at least some subprime
lending.\9\ As a third option, if the Bureau raises the threshold to
1,050,000 aggregate annual originations, the Bureau preliminarily
estimates that five nonbank entities would qualify as larger
participants, and the updated rule would cover approximately 42 percent
of originations. At present, the five nonbank entities with the highest
number of originations are captives, which focus on prime lending.
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\9\ The estimates of market participants and market share are
preliminary and are based on limited data from Experian
Velocity\SM\. These estimates may change in any future rulemakings.
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VI. Executive Order 12866
The Office of Information and Regulatory Affairs within the Office
of Management and Budget (OMB) has determined that this action is a
``significant regulatory action'' under Executive Order 12866, as
amended. Accordingly, OMB has reviewed this action.
VII. Questions for Commenters
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?
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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\SM\
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:
a. The type of nonbank entity;
b. Number of originations;
c. The share of the entity's lease versus loan originations; and
d. Characteristics of the loan or lease?
19. Among entities above the current threshold, how do the risks,
costs, or benefits to consumers of a potential increase in the
threshold vary by:
a. The type of nonbank entity;
b. Number of originations;
c. Whether the consumer took out a lease or a loan; and
d. Characteristics of the loan or lease?
Russell Vought,
Acting Director, Consumer Financial Protection Bureau.
[FR Doc. 2025-15089 Filed 8-7-25; 8:45 am]
BILLING CODE 4810-AM-P