Auto lending compliance is changing course: How to prepare

ARTICLE | April 22, 2022

Authored by RSM US LLP

Auto finance lenders come in many shapes and sizes, giving rise to a complex, dynamic regulatory framework. While indirect auto lending has long been a priority among regulators concerned about fair lending practices, recent CFPB data and enforcement priorities suggest a broader push for enhanced scrutiny. Indicators include:

• New CFPB concerns related to affordable credit for auto loans given the increasing cost of vehicles
• Possible incentives for auto lenders to seize and illegally repossess certain vehicles due to the competitive used-car market
• The CFPB’s recent push for public commentary regarding general junk fees, including fees associated with auto loans

Given the impact of the pandemic, the increased costs of vehicles and the CFPB’s general push to limit junk fees, the auto lending space is ripe for significant regulatory change and increased enforcement action.

Factors to consider

Your auto lending compliance program should include robust monitoring to ensure your risk management efforts are operating effectively and are nimble enough to respond to regulatory change. Factors to consider include:

• Complaint trending analysis:
  • Is your consumer complaint data complete and accurate?
  • Do you have a centralized mechanism for reviewing complaints in the aggregate so that management can adopt and implement appropriate procedural changes?
• Regulatory change management:
  • Have you assessed the impact of recent state-level enforcement actions?
  • Are you actively monitoring ongoing CFPB efforts, including those related to any of your fees that could be deemed junk fees?
  • How does your organization assess and escalate its response to regulatory changes?
• Effective risk assessment:
  • Your auto finance and compliance risk assessment should be uniquely tailored to your auto lending model. If you are using a blanket approach without regard for the complexity of your model, you may be missing the mark.
  • Auto lending risks and priorities are constantly changing. How often do you refresh your method of risk assessment?
• Third-party/vendor risk management:
  • How robust is your review of key vendors and third parties involved in auto loan origination and servicing?
  • Are you confident your debt collectors are complying with recent changes to the Fair Debt Collection Practices Act?
  • Have you considered whether you or your debt collectors may have illegally repossessed vehicles while trying to remain competitive in the current used-car market?

Next steps for auto lenders

Auto lenders should look to enhance compliance monitoring to account for ongoing regulatory changes. Additionally, it’s important to rightsize your compliance program to fit the unique needs of your business. Working with a partner that can improve your compliance risk assessment, review your relationships with third-party vendors, and provide data and analyses around your auto lending operations can help tremendously in navigating the auto lending compliance landscape.