CFPB
Examination Procedures Auto Finance
CFPB August 2019 Auto Finance 3
Refinancings of credit granted for the purpose of purchasing an automobile (and any
subsequent refinancings thereof) that are secured by an automobile; and
Purchases or acquisitions of any of the foregoing obligations.
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The rule also clarified that auto dealers, including Buy-Here, Pay-Here (BHPH) dealers, are not
larger participants under the rule.
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Sources of Auto Financing
Consumers often purchase or obtain a vehicle by acquiring credit or entering into a lease
arrangement. When acquiring credit, consumers can go through an indirect or a direct channel.
Indirect Lending Channel
With indirect lending, or dealer arranged financing, the dealer, rather than the consumer,
typically selects the lender that will provide financing. Upon completion of the vehicle selection
process, the dealer collects the consumer’s credit application information and forwards that
information to one or more lenders using a standardized platform, such as DealerTrack,
RouteOne, or Credit Union Direct Lending (CUDL).
When selecting a lender to approve the loan, the dealer may have incentives to select a particular
lender over another. For example, a franchised dealer, a dealer that sells vehicles for certain auto
manufacturers, may have incentives, such as promotional discounts or limited-time financing
offers, to use the manufacturer’s subsidiary finance company – typically called a captive finance
company – over another lender. Regardless of which lender the dealer selects, the underwriting
and approval process is typically the same. That is, after evaluating the applicant, the lender will
provide the dealer with its credit decision, including purchase eligibility criteria and other
stipulations, such as a risk-based “buy rate.”
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After receiving a credit decision, the dealer will then finalize a retail installment sales contract
with the consumer and subsequently sell that contract to the lender that provided the dealer with
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12 CFR § 1090.108(a)(i)(A).
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Id. § 1090.108(c); Section 1029 of the Dodd-Frank Act, 12 USC 5519, limits the Bureau’s authority over auto dealers. The final
larger participant rule references this exclusion. See 12 CFR 1090.108(c)(1). The larger participant rule also excludes motor
vehicle dealers that are predominantly engaged in the sale (and/or leasing) and servicing of motor vehicles and operate a line of
business that involves the extension of retail credit or retail leases directly to consumers without routinely assigning them to
unaffiliated third party finance or leasing sources. See 12 CFR 1090.108(c)(2) (citing 12 USC 5519(b)(2) and (f)(2)); see also 80
Fed. Reg. at 37515-16 (explaining the exclusion for BHPH dealers in paragraph (c)(2)).
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The “buy rate” establishes the minimum interest rate at which the finance company is willing to purchase the retail installment
sales contract executed between the consumer and the dealer for the purchase of the vehicle.