What the What? The Consumer Financial Protection Bureau Shows Its Cards

November 4, 2015Articles Are We There Yet? - Transportation Law Blog

Maybe you missed the hullabaloo about the Consumer Financial Protection Bureau’s (“CFPB”) new mortgage disclosure rules. You’ll be forgiven if you did, but the “Know Before You Owe” rules offer an interesting window into the CFPB’s push to give consumers more power in large financial transactions. 2015 has seen record-breaking enforcement actions designed to eliminate dealer reserves and reshape auto lending. The CFPB is likely to continue its push to reform auto sales through the only players that fall under its jurisdiction, indirect auto lenders. What do these new mortgage rules tell us about the CFPB’s next steps on auto finance?

  • Reducing the Information Gap – The CFPB is bent on putting more information in the consumer’s hands before they commit to a finance transaction. Expect reforms that formalize the way that finance options are quoted to the consumer.
  • Comparison Shopping – Many dealerships provide the buyer with a single payment quote, with little to no information on the lender. Expect the CFPB to bring transparency to this process with tools that allow the consumer to compare different lenders more effectively.
  • Uniformity from Quote to Execution – The new mortgage rules also homogenize disclosure paperwork, mirroring closing documents to the loan estimate. Expect more formality around how auto loans quotes, and a move to bring the quote closer to the final disclosure of terms and rate.
  • More Time to Decide – The new mortgage rules provide consumers with a non-waivable three day period to get familiar with the terms and conditions of their loan. Expect the CFPB to look at ways to institute a similar “waiting period” for auto lending.
  • The Hitch – The CFPB is hampered by its own jurisdiction, which does not extend to auto dealers. The spate of enforcement actions show that the CFPB is willing to push reforms through the indirect auto lenders to get the changes it wants at the dealership level.

Expect the transparency, formality, and consumer-oriented auto lending reforms to continue in much the same way that the “Know Before You Owe” mortgage disclosures did last month.

Follow-Up Reading….

  • Laura Agadoni’s excellent and succinct breakdown of what the “Know Before You Owe” rules mean for home buyers (Trulia)

The CFPB’s September 17, 2015 Press Release regarding the new rules (CFPB)