This section of the FEDERAL REGISTER

contains notices to the public of the proposed

issuance of rules and regulations. The

purpose of these notices is to give interested

persons an opportunity to participate in the

rule making prior to the adoption of the final

rules.

Proposed Rules Federal Register

60762 

Vol. 79, No. 195 

Wednesday, October 8, 2014 

1Public Law 111–203, section 1024, 124 Stat. 

1376, 1987 (2010) (codified at 12 U.S.C. 5514). 2The provisions of 12 U.S.C. 5514 apply to 

certain categories of nondepository (nonbank) 

covered persons, described in subsection (a)(1), and 

expressly exclude from coverage persons described 

in 12 U.S.C. 5515(a) or 5516(a). ‘‘Covered persons’’ 

include: ‘‘(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). The Bureau also 

has the authority to supervise any nonbank covered 

person that it ‘‘has reasonable cause to determine, 

by order, after notice to the covered person and a 

reasonable opportunity . . . to respond . . . is 

engaging, or has engaged, in conduct that poses 

risks to consumers with regard to the offering or 

provision of consumer financial products or 

services.’’ 12 U.S.C. 5514(a)(1)(C); see also 12 CFR 

part 1091 (prescribing procedures for making 

determinations under 12 U.S.C. 5514(a)(1)(C)). In 

addition, the Bureau has supervisory authority over 

very large depository institutions and credit unions 

and their affiliates. 12 U.S.C. 5515(a). Furthermore, 

the Bureau has certain authorities relating to the 

supervision of other depository institutions and 

credit unions. 12 U.S.C. 5516(c)(1), (e). One of the 

Bureau’s mandates under the Dodd-Frank Act is to 

ensure that ‘‘Federal consumer financial law is 

enforced consistently without regard to the status 

of a person as a depository institution, in order to 

promote fair competition.’’ 12 U.S.C. 5511(b)(4). 

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’’). 

BUREAU OF CONSUMER FINANCIAL 

PROTECTION 

12 CFR Parts 1001 and 1090 

[Docket No. CFPB–2014–0024] 

RIN 3170–AA46 

Defining Larger Participants of the 

Automobile Financing Market and 

Defining Certain Automobile Leasing 

Activity as a Financial Product or 

Service 

AGENCY: Bureau of Consumer Financial 

Protection. 

ACTION: Proposed rule with request for 

public comment. 

SUMMARY: The Bureau of Consumer 

Financial Protection (Bureau or CFPB) 

proposes to amend the regulation 

defining larger participants of certain 

consumer financial product and service 

markets by adding a new section to 

define larger participants of a market for 

automobile financing. The new section 

would define a market that includes 

grants of credit for the purchase of an 

automobile, refinancings of such credit 

obligations, and purchases or 

acquisitions of such credit obligations 

(including refinancings). It would also 

include automobile leases and 

purchases or acquisitions of such 

automobile lease agreements. The 

Bureau is proposing this rule pursuant 

to its authority, under the Dodd-Frank 

Wall Street Reform and Consumer 

Protection Act (Dodd-Frank Act), to 

supervise certain nonbank covered 

persons for compliance with Federal 

consumer financial law and for other 

purposes. The Bureau has the authority 

to supervise nonbank covered persons 

of all sizes in the residential mortgage, 

private education lending, and payday 

lending markets. In addition, the Bureau 

has the authority to supervise nonbank 

‘‘larger participant[s]’’ of markets for 

other consumer financial products or 

services, as the Bureau defines by rule. 

The proposal (Proposed Rule) would 

identify a market for automobile 

financing and define as larger 

participants of this market certain 

nonbank covered persons that would be 

subject to the Bureau’s supervisory 

authority. The Proposed Rule would 

also define certain automobile leases as 

a ‘‘financial product or service’’ under 

section 1002(15)(A)(xi)(II) of the DoddFrank Act. Finally, the Proposed Rule 

would make certain technical 

corrections to existing larger-participant 

rules. 

DATES: Comments must be received on 

or before December 8, 2014. 

ADDRESSES: You may submit comments, 

identified by Docket No. CFPB–2014– 

0024 or RIN 3170–AA46, by any of the 

following methods: 

• Electronic: http://

www.regulations.gov. Follow the 

instructions for submitting comments. 

• Mail: Monica Jackson, Office of the 

Executive Secretary, Consumer 

Financial Protection Bureau, 1700 G 

Street NW., Washington, DC 20552. 

• Hand Delivery/Courier: Monica 

Jackson, Office of the Executive 

Secretary, Consumer Financial 

Protection Bureau, 1275 First Street NE., 

Washington, DC 20002. 

Instructions: All submissions should 

include the agency name and docket 

number or Regulatory Information 

Number (RIN) for this rulemaking. 

Because paper mail in the Washington, 

DC area and at the Bureau is subject to 

delay, commenters are encouraged to 

submit comments electronically. In 

general, all comments received will be 

posted without change to http://

www.regulations.gov. In addition, 

comments will be available for public 

inspection and copying at 1275 First 

Street NE., Washington, DC 20002, on 

official business days between the hours 

of 10 a.m. and 5 p.m. Eastern Time. You 

can make an appointment to inspect the 

documents by telephoning (202) 435– 

7275. 

All comments, including attachments 

and other supporting materials, will 

become part of the public record and 

subject to public disclosure. Sensitive 

personal information, such as account 

numbers or Social Security numbers, 

should not be included. Comments will 

not be edited to remove any identifying 

or contact information. 

FOR FURTHER INFORMATION CONTACT: 

Jolina Cuaresma, Counsel, Andrea Pruitt 

Edmonds and Amanda Quester, Senior 

Counsels, Office of Regulations, at (202) 

435–7700. 

SUPPLEMENTARY INFORMATION: 

I. Overview 

Section 1024 of the Dodd-Frank Wall 

Street Reform and Consumer Protection 

Act (Dodd-Frank Act), codified at 12 

U.S.C. 5514,1 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 the Bureau 

defines by rule.4

This Proposed Rule, if adopted, 

would (1) define certain nonbank 

covered persons as larger participants of 

a market for automobile financing that 

would include grants of credit for the 

purchase of an automobile, refinancings 

of such credit obligations and any 

subsequent refinancings thereof, 

purchases or acquisitions of such credit 

obligations (including refinancings), 

automobile leases, and purchases or 


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Federal Register / Vol. 79, No. 195 / Wednesday, October 8, 2014 / Proposed Rules 60763 

5The first three 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), and student 

loan servicing, 78 FR 73383 (Dec. 6, 2013) (Student 

Loan Servicing Rule). The Bureau also recently 

released a fourth rule, which defines larger 

participants of a market for international money 

transfers and is available at http://

files.consumerfinance.gov/f/201409_cfpb_finalrule_larger-participant-rule-international-moneytransfer-market.pdf (International Money Transfer 

Rule). 

6 12 U.S.C. 5514(b)(1). 

7See 12 U.S.C. 5514(b) (authorizing the Bureau 

both to conduct examinations and to require reports 

from entities subject to supervision). 

8CFPB, CFPB Supervision and Examination 

Manual (Oct. 1, 2012), available at http:// 

www.consumerfinance.gov/guidance/supervision/ 

manual/. 

9The Bureau’s supervisory authority also extends 

to service providers of those covered persons that 

are subject to supervision under 12 U.S.C. 

5514(a)(1). 12 U.S.C. 5514(e); see also 12 U.S.C. 

5481(26) (defining ‘‘service provider’’). 

10 12 CFR 1090.100–.103. 

11 77 FR 42874, 42875 (Consumer Reporting 

Rule), 12 CFR 1090.104; 77 FR 65775, 65777 

(Consumer Debt Collection Rule), 12 CFR 1090.105; 

78 FR 73383, 73384 (Student Loan Servicing Rule), 

12 CFR 1090.106. As noted above, the Bureau also 

recently released the International Money Transfer 

Rule, which is available at http:// 

files.consumerfinance.gov/f/201409_cfpb_finalrule_larger-participant-rule-international-moneytransfer-market.pdf. 

acquisitions of automobile lease 

agreements; (2) define, pursuant to 

section 1002(15)(A)(xi)(II) of the DoddFrank Act, the term ‘‘financial product 

or service’’ to include certain types of 

automobile leases that banks are 

authorized to offer and that the Bureau 

finds have or likely will have a material 

impact on consumers; and (3) make 

certain technical corrections to revise a 

term used in subpart A of 12 CFR part 

1090 and to clarify the affiliate 

aggregation requirements in two earlier 

larger-participant rules. 

This Proposed Rule would be the fifth 

in a series of rulemakings to define 

larger participants of markets for other 

consumer financial products or services 

for purposes of section 1024(a)(1)(B) of 

the Dodd-Frank Act.5 The Proposed 

Rule would establish the Bureau’s 

supervisory authority over certain 

nonbank covered persons participating 

in a market for automobile financing. 

The Proposed Rule would describe this 

market for consumer financial products 

or services, which the Proposed Rule 

labels ‘‘automobile financing.’’ The 

proposed definition would not 

encompass all activities that could be 

considered auto financing. Any 

reference herein to ‘‘the automobile 

financing market’’ means only the 

particular market for automobile 

financing identified by the Proposed 

Rule. 

The Bureau is authorized to supervise 

nonbank covered persons subject to 

section 1024 of the Dodd-Frank Act for 

purposes of: (1) Assessing compliance 

with Federal consumer financial law; (2) 

obtaining information about such 

persons’ activities and compliance 

systems or procedures; and (3) detecting 

and assessing risks to consumers and 

consumer financial markets.6 The 

Bureau conducts examinations, of 

various scopes, of supervised entities. In 

addition, the Bureau may, as 

appropriate, request information from 

supervised entities without conducting 

examinations.7

The Bureau prioritizes supervisory 

activity among nonbank covered 

persons on the basis of risk, taking into 

account, among other factors, the size of 

each entity, the volume of its 

transactions involving consumer 

financial products or services, the size 

and risk presented by the market in 

which it is a participant, the extent of 

relevant State oversight, and any field 

and market information that the Bureau 

has on the entity. Such field and market 

information might include, for example, 

information from complaints and any 

other information the Bureau has about 

risks to consumers posed by a particular 

entity. 

The specifics of how an examination 

takes place vary by market and entity. 

However, the examination process 

generally proceeds as follows. Bureau 

examiners contact the entity for an 

initial conference with management and 

often request records and other 

information. Bureau examiners will 

ordinarily also review the components 

of the supervised entity’s compliance 

management system. Based on these 

discussions and a preliminary review of 

the information received, examiners 

determine the scope of an on-site 

examination and then coordinate with 

the entity to initiate the on-site portion 

of the examination. While on-site, 

examiners spend a period of time 

discussing with management the 

entity’s policies, processes, and 

procedures; reviewing documents and 

records; testing transactions and 

accounts for compliance; and evaluating 

the entity’s compliance management 

system. Examinations may involve 

issuing confidential examination 

reports, supervisory letters, and 

compliance ratings. In addition to the 

process described above, the Bureau 

may also conduct off-site examinations. 

The Bureau has published a general 

examination manual describing the 

Bureau’s supervisory approach and 

procedures.8 As explained in the 

manual, the Bureau will structure 

examinations to address various factors 

related to a supervised entity’s 

compliance with Federal consumer 

financial law and other relevant 

considerations. 

This Proposed Rule would establish a 

category of nonbank covered persons 

that is subject to the Bureau’s 

supervisory authority under section 

1024 by defining ‘‘larger participants’’ of 

a market for automobile financing.9 The 

aspect of the Proposed Rule defining 

larger participants of a market for 

automobile financing pertains only to 

that purpose and would not impose new 

substantive consumer protection 

requirements. Nonbank covered persons 

generally are subject to the Bureau’s 

regulatory and enforcement authority, 

and any applicable Federal consumer 

financial law, regardless of whether they 

are subject to the Bureau’s supervisory 

authority. 

The Bureau proposes to add § 1001.1 

and § 1001.2(a) in new part 1001 to title 

12 of the Code of Federal Regulations. 

Proposed § 1001.1 would state the 

authority and purpose of part 1001, 

which is to implement the Bureau’s 

authority, granted by section 

1002(15)(A)(xi) of the Dodd-Frank Act, 

to define the term ‘‘financial product or 

service’’ to include financial products or 

services in addition to those defined in 

sections 1002(15)(A)(i)–(x). Proposed 

§ 1001.2(a) would define the term 

‘‘financial product or service’’ under 

that same authority to include certain 

automobile leases. 

II. Summary of Proposed Rule 

The Bureau is authorized to define 

larger participants in markets for 

consumer financial products or services. 

Subpart A of the Bureau’s existing 

larger-participant rule, 12 CFR part 

1090, prescribes various procedures, 

definitions, standards, and protocols 

that apply with respect to all markets in 

which the Bureau defines larger 

participants.10 Those generally 

applicable provisions would also apply 

to the automobile financing market 

described by this Proposed Rule. The 

definitions in § 1090.101 should be 

used, unless otherwise specified, when 

interpreting terms in this Proposed 

Rule. 

The Bureau includes relevant market 

descriptions and larger-participant tests, 

as it develops them, in subpart B.11

Accordingly, the Proposed Rule 

defining larger participants of the 

automobile financing market would 

become § 1090.108 in subpart B. 

The Proposed Rule would define a 

market for automobile financing that 


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60764 Federal Register / Vol. 79, No. 195 / Wednesday, October 8, 2014 / Proposed Rules 

12Under section 1029 of the Dodd-Frank Act, the 

Bureau may not exercise its authority over certain 

auto dealers, as outlined in that section. As 

explained below, the proposed larger-participant 

rule would also exclude certain dealers that extend 

retail credit or leases without routinely assigning 

them to unaffiliated third parties, even though such 

dealers are not subject to the statutory exclusion. 

13Any reference to the term ‘‘automobile’’ means 

only the particular vehicles identified by the 

Proposed Rule. The term ‘‘auto’’ as used in this 

Proposed Rule is intended to include a broader 

category of vehicles. Similarly, the term ‘‘auto 

financing’’ is used generically and more broadly 

than the proposed defined term ‘‘automobile 

financing.’’ 

14 12 CFR 1090.102. 

15 12 CFR 1090.103(a). 

16 12 CFR 1090.103(d). 

17As discussed in greater detail below, section 

1002(15)(A)(ii) also requires that leases be nonoperating and have an initial term of at least 90 

days. The Bureau believes that automobile leases in 

the current consumer leasing market meet these two 

criteria. 

18 12 U.S.C. 5514(a)(1)(B), (a)(2). 19 12 U.S.C. 5514(b)(7). 20 12 U.S.C. 5512(b)(1). 21 12 U.S.C. 5481(15)(A)(xi). 

would cover specific activities and 

would set forth a test to determine 

whether a nonbank covered person is a 

larger participant of that market. 

Nonbanks that are the subject of this 

Proposed Rule provide automobile 

financing by engaging in one or more of 

the following activities: Granting credit 

for the purpose of purchasing an 

automobile; refinancing existing credit 

obligations or previously refinanced 

credit obligations that had been made 

for the purchase of an automobile; 

purchasing or acquiring such credit 

obligations (including refinancings); 

providing automobile leases; and 

purchasing or acquiring automobile 

lease agreements. 

The Bureau is not proposing to 

include automobile title lending or the 

securitization of automobile loans and 

leases within the meaning of the term 

‘‘automobile financing’’ in this Proposed 

Rule, although as discussed below the 

Bureau is seeking comment on this 

approach. Moreover, the Proposed Rule 

excludes certain auto dealers.12 The 

Proposed Rule also would not apply to 

depository institutions and credit 

unions that engage in automobile 

financing, including those already 

subject to the Bureau’s supervisory 

authority. 

The Proposed Rule would define 

‘‘automobile’’ to mean any selfpropelled vehicle primarily used for 

personal, family, or household purposes 

for on-road transportation.13 The 

Proposed Rule would define ‘‘annual 

originations’’ as grants of credit for the 

purchase of an automobile, refinancings 

of such credit obligations and any 

subsequent refinancings thereof, and 

purchases or acquisitions of such credit 

obligations (including refinancings). It 

would also include ‘‘automobile leases’’ 

and purchases or acquisitions of 

automobile lease agreements. Under the 

Proposed Rule, the term ‘‘automobile 

lease’’ would mean leases that fall 

within the meaning of section 

1002(15)(A)(ii) of the Dodd-Frank Act or 

meet the requirements of proposed 

§ 1001.2(a), which is discussed below. 

The Proposed Rule would set forth a 

test to determine whether a nonbank 

covered person is a larger participant of 

the automobile financing market. A 

nonbank covered person would be a 

larger participant if it has at least 10,000 

aggregate annual originations. As 

prescribed by existing § 1090.102, any 

nonbank covered person that qualifies 

as a larger participant would remain a 

larger participant until two years after 

the first day of the tax year in which the 

person last met the applicable test.14

Pursuant to existing § 1090.103, a 

person would be able to dispute 

whether it qualifies as a larger 

participant in the automobile financing 

market. The Bureau would notify an 

entity when the Bureau intended to 

undertake supervisory activity; the 

entity would then have an opportunity 

to submit documentary evidence and 

written arguments in support of its 

claim that it was not a larger 

participant.15 Section 1090.103(d) 

provides that the Bureau may require 

submission of certain records, 

documents, and other information for 

purposes of assessing whether a person 

is a larger participant of a covered 

market;16 this authority would be 

available to the Bureau to facilitate its 

identification of larger participants of 

the automobile financing market, just as 

in other markets. 

As noted above, the Bureau is 

proposing to include automobile leases 

in the criterion it would use to define 

larger participants in the market for 

automobile financing. Certain consumer 

leases are identified as a financial 

product or service under section 

1002(15)(A)(ii) and, thus, the Bureau 

would have authority over such leases 

and those leases would count toward 

the threshold for the larger-participant 

test in this Proposed Rule. While most 

consumer leases fall within section 

1002(15)(A)(ii), some likely will not 

because section 1002(15)(A)(ii) requires 

that leases be, among other things, the 

functional equivalent of purchase 

finance arrangements.17 As discussed 

further below, the Bureau believes that 

the purpose of the Proposed Rule and 

the Bureau’s overall mission would be 

best served by covering automobile 

leasing more broadly. Accordingly, the 

Bureau also proposes in § 1001.2(a) to 

define the term ‘‘financial product or 

service’’ under its authority granted by 

section 1002(15)(A)(xi)(II) of the DoddFrank Act to include automobile leases 

that do not fall under the definition in 

section 1002(15)(A)(ii). 

Finally, the Proposed Rule would 

amend the Bureau’s existing largerparticipant rule. Specifically, the 

Bureau is proposing to make a technical 

correction to existing § 1090.101, by 

inserting the word ‘‘financial’’ before 

the term ‘‘product or service’’ in the 

definition of ‘‘nonbank covered person.’’ 

The Proposed Rule would also amend 

paragraph (iii)(D) of the definition of 

‘‘annual receipts’’ in existing 

§ 1090.104(a) and § 1090.105(a), which 

governs how the affiliate aggregation 

rules apply to formerly affiliated 

companies for purposes of the consumer 

reporting and consumer debt collection 

larger-participant rules. The proposal 

would clarify that if a company ceases 

to be an affiliated company of a 

nonbank covered person during the 

relevant measurement period, its annual 

receipts must be aggregated for the 

entire period of measurement. 

III. Legal Authority and Procedural 

Matters 

A. Rulemaking Authority 

The Bureau is issuing this Proposed 

Rule pursuant to its authority under the 

Dodd-Frank Act: (1) Sections 

1024(a)(1)(B) and (a)(2), which authorize 

the Bureau to supervise nonbanks that 

are larger participants of markets for 

consumer financial products or services, 

as defined by rule; 18 (2) section 

1024(b)(7), which, among other things, 

authorizes the Bureau to prescribe rules 

to facilitate the supervision of covered 

persons under section 1024; 19 (3) 

section 1022(b)(1), which grants the 

Bureau the authority to prescribe rules 

as may be necessary or appropriate to 

enable the Bureau to administer and 

carry out the purposes and objectives of 

Federal consumer financial law, and to 

prevent evasions of such law; 20 and (4) 

section 1002(15)(A)(xi), which 

authorizes the Bureau to prescribe rules 

to define ‘‘other financial product[s] or 

service[s],’’ if the Bureau finds that such 

financial products or services are: (i) 

Entered into or conducted as a 

subterfuge or with a purpose to evade 

any Federal consumer financial law; or 

(ii) permissible for a bank or a financial 

holding company to offer or provide 

under any applicable Federal law or 

regulation, and have, or likely will have, 

a material impact on consumers.21


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22 5 U.S.C. 553(d). 

23Public Law 100–86, 101 Stat. 519 (1987) 

(codified at 12 U.S.C. 24(Tenth)). 

24 DBRS, Methodology: Rating U.S. Auto Lease 

Securitizations 4 (Jan. 2010), available at http://

www.dbrs.com/research/231458. 

25Melinda Zabritski, Experian Automotive, State 

of the Automotive Finance Market First Quarter 

2014 (June 5, 2014), available at http://www.

experian.com/assets/automotive/brochures/

experian-auto-2014-q1-credit-webinar-presentation6-5-2014.pdf?WT.srch=Auto_Q12014FinanceTrends

_PDF. 

26See id. at 21. 

27See id. at 20. 

28Section 1002(15)(A)(ii) also requires that leases 

be non-operating and have an initial term of at least 

90 days. The Bureau believes that automobile leases 

in the current consumer leasing market meet these 

two criteria. 

29Section 1002(5) of the Dodd-Frank Act defines 

‘‘Consumer financial product or service’’ as ‘‘any 

financial product or service that is described in one 

or more categories under—(A) paragraph (15) and 

is offered or provided for use by consumers 

primarily for personal, family, or household 

purposes; or (B) clause (i), (iii), (ix), or (x) of 

paragraph (15)(A), and is delivered, offered, or 

provided in connection with a consumer financial 

product or service referred to in subparagraph (A).’’ 

30The Bureau is not aware of any Federal or State 

statute or regulation that defines the term. 

31 12 U.S.C. 5511(a). 

32See Fed. Trade Comm’n, Consumer 

Information: Understanding Vehicle Financing (Jan. 

2014), available at http://www.consumer.ftc.gov/

articles/0056-understanding-vehicle-financing. 

33Like consumers who borrow money to 

purchase a vehicle, consumers who lease are 

contractually obligated to make monthly lease 

payments during the lease term. See Fed. Res. Sys., 

Key to Vehicle Leasing Consumer Guide (Mar. 13, 

Continued 

B. Proposed Effective Date of Final Rule 

The Administrative Procedure Act 

generally requires that rules be 

published not less than 30 days before 

their effective dates.22 The Bureau is 

proposing that the final rule arising 

from this Proposed Rule would be 

effective 60 days after publication. 

IV. Section-by-Section Analysis 

A. 12 CFR Part 1001 Financial Product 

or Service 

Section 1001.1 Authority and Purpose 

Proposed § 1001.1 states the authority 

and purpose for new part 1001. It 

explains that under section 

1002(15)(A)(xi) of the Dodd-Frank Act, 

the Bureau is authorized to define 

certain financial products or services for 

purposes of title X of the Dodd-Frank 

Act, in addition to those defined in 

sections 1002(15)(A)(i)–(x). As proposed 

§ 1001.1 explains, the purpose of part 

1001 is to implement that authority. 

Section 1001.2 Definitions 

2(a) 

Proposed § 1001.2(a) would define the 

term ‘‘financial product or service’’ 

under section 1002(15)(A)(xi)(II) of the 

Dodd-Frank Act, to include certain 

automobile leases that (1) meet the 

requirements of section 108 of the 

Competitive Equality Banking Act of 

1987 (CEBA),23 as implemented by 12 

CFR part 23, and are thus permissible 

for banks to offer or provide; and (2) are 

not currently defined as a financial 

product or service under section 

1002(15)(A)(ii) of the Dodd-Frank Act. 

Under section 1002(15)(A)(xi)(II), for 

purposes of title X of the Act, the 

Bureau may define as a covered 

financial product or service, by 

regulation: ‘‘such other financial 

product or service . . . if the Bureau 

finds that such financial product or 

service is— . . . (II) permissible for a 

bank or for a financial holding company 

to offer or to provide under any 

provision of a Federal law or regulation 

applicable to a bank or a financial 

holding company, and has, or likely will 

have, a material impact on consumers.’’ 

The Bureau is proposing § 1001.2(a) 

pursuant to this authority. 

Depository institutions have long 

engaged in auto leasing activities, and 

nonbank entities are a major player in 

the leasing sector.24 It is an important 

and growing part of the auto financing 

market for consumers. While the auto 

financing market is largely comprised of 

purchase loans, in recent years 

consumers have begun to migrate more 

towards leasing agreements.25 As of the 

first quarter of 2014, leases comprise 

approximately 30 percent of new 

vehicle automotive financing 

transactions, which is up from about 20 

percent five years ago.26 Furthermore, of 

all new and used auto financing 

transactions recorded in the first quarter 

of 2014, approximately 14 percent 

occurred through leasing arrangements, 

while the remainder used purchase 

financing.27

The Bureau is proposing to include 

automobile leasing in the consumer 

financial product or service market for 

automobile financing for purposes of a 

rule defining larger participants in that 

market. Section 1002(15)(A)(ii) defines 

the term ‘‘financial product or service’’ 

to include certain leases that, among 

other things, are the functional 

equivalent of purchase finance 

arrangements.28 As discussed below, the 

Bureau believes that most consumer 

automobile leases meet this 

requirement; however, some may not. 

The Dodd-Frank Act accounts for the 

possibility that the enumerated list of 

financial products and services in 

sections 1002(15)(A)(i)–(x) may not 

completely capture the markets for 

financial products or services available 

to consumers. Specifically, section 

1002(15)(A)(xi)(II) grants the Bureau the 

authority to define additional financial 

products or services by regulation as 

described above. Pursuant to this 

authority, the Bureau is proposing 

§ 1001.2(a) to define automobile leases 

that (1) meet the requirements of section 

108 of CEBA, as implemented by 12 

CFR part 23, and are thus permissible 

for banks to offer or provide; and (2) are 

not currently defined as a financial 

product or service under section 

1002(15)(A)(ii) of the Dodd-Frank Act. 

Section 1002(15)(A)(ii) defines the 

term ‘‘financial product or service,’’ in 

relevant part, as: ‘‘extending or 

brokering leases of personal . . . 

property that are the functional 

equivalent of purchase finance 

arrangements, if—(I) the lease is on a 

non-operating basis; [and] (II) the initial 

term of the lease is at least 90 days.’’ 29

For ease of reference, the Bureau refers 

to these types of leasing arrangements 

herein as ‘‘category (ii)’’ leases. As 

explained below, in the Bureau’s view, 

the features of a category (ii) lease are 

found in most consumer automobile 

leases. 

The Bureau believes the phrase 

‘‘functional equivalent of purchase 

finance arrangements’’—which is not 

defined in the Dodd-Frank Act 30—is 

reasonably interpreted to encompass 

most automobile leases. Under section 

1021 of the Dodd-Frank Act, the Bureau 

is charged with ‘‘implement[ing], and, 

where applicable, enforc[ing] Federal 

consumer financial law consistently for 

the purpose of ensuring that all 

consumers have access to markets for 

consumer financial products and 

services and that markets for consumer 

financial products and services are fair, 

transparent, and competitive.’’ 31 In 

light of this purpose and mandate, the 

Bureau believes the term ‘‘functional 

equivalent of purchase finance 

arrangements’’ is best interpreted from 

the perspective of the consumer. 

For consumers, leasing a vehicle 

requires an application process and an 

ongoing contractual obligation that are 

both financial in nature and similar to 

entering into a financial arrangement to 

purchase a vehicle. Like a consumer 

seeking to qualify for a loan to purchase 

a vehicle, a consumer seeking to lease 

a vehicle must provide basic financial 

information such as income and credit 

history.32 Though a consumer who 

leases an automobile need not finance 

the entire cost of the vehicle, the 

consumer still undertakes a major 

financial obligation in the form of a 

commitment to make a stream of 

payments over a significant period of 

time.33 The consumer must consider 


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2013), available at http://www.federalreserve.gov/

pubs/leasing/. 

34See id. 

35See id. 

36See id. Also, if a consumer terminates a lease 

early, early termination fees may apply. 

37CFPB, Ask CFPB: What is residual value? (June 

24, 2012), available at http://

www.consumerfinance.gov/askcfpb/737/whatresidual-value.html. The residual value is the 

projected market value of the vehicle at the end of 

the lease, which is usually the amount the 

consumer would have to pay to purchase the 

vehicle at the end of the lease term. Additionally, 

the consumer may be responsible for any applicable 

taxes or fees. 

38 12 CFR 225.28(b)(3)(i) n.6 (‘‘The requirement 

that the lease be on a nonoperating basis means that 

the bank holding company may not, directly or 

indirectly, engage in operating, servicing, 

maintaining, or repairing leased property during the 

lease term. For purposes of the leasing of 

automobiles, the requirement that the lease be on 

a nonoperating basis means that the bank holding 

company may not, directly or indirectly: (1) Provide 

servicing, repair, or maintenance of the leased 

vehicle during the lease term; (2) purchase parts 

and accessories in bulk or for an individual vehicle 

after the lessee has taken delivery of the vehicle; (3) 

provide the loan of an automobile during servicing 

of the leased vehicle; (4) purchase insurance for the 

lessee; or (5) provide for the renewal of the vehicle’s 

license merely as a service to the lessee where the 

lessee could renew the license without 

authorization from the lessor.’’). 

39See supra note 33. 

40See Zabritski, supra note 25, at 25; see also 

supra note 33. 

41Under the implementing regulations, net lease 

is defined as ‘‘a lease under which the national 

bank will not, directly or indirectly, provide or be 

obligated to provide for: 

(1) Servicing, repair, or maintenance of the leased 

property during the lease term; 

(2) Parts or accessories for the leased property; 

how much cash to use, if any, for a 

down payment, the preferred lease term, 

and the affordability of monthly 

payments and other costs including 

maintenance, insurance, and state 

registration fees. 

Auto leasing also shares many other 

features with auto lending. A consumer 

must demonstrate an ability to pay the 

monthly payments in order to qualify 

for a lease and a consumer’s 

creditworthiness impacts the terms of 

the lease. An auto finance company may 

furnish information about a lessee, such 

as payment history, to credit bureaus in 

the same manner that the company does 

for a borrower. Also, similar to a 

consumer who finances an auto with a 

loan, a consumer who leases an auto 

bears the responsibility for the vehicle’s 

upkeep and must maintain, repair, and 

service the vehicle during the lease 

term.34 The consumer must also insure 

the vehicle and bears the risk should the 

vehicle become damaged or totaled.35

Similarly, if a consumer fails to make 

loan or lease payments, the vehicle must 

be returned to the auto finance 

company, and fees or penalties may 

apply.36 Most importantly, regardless of 

whether consumers seek to purchase or 

lease a vehicle, they must negotiate the 

price and terms. For all the foregoing 

reasons, automobile leases carry similar 

obligations and risks that vehicle loans 

present to consumers. In addition, in an 

auto leasing arrangement, the consumer 

can typically purchase the vehicle at the 

end of the lease term for a predetermined amount, which is generally 

based on the residual value of the 

vehicle.37 Accordingly, from the 

perspective of a consumer, leasing 

presents an alternative method to a loan 

for acquiring a vehicle through a series 

of installment payments, and is 

therefore reasonably understood to be 

the functional equivalent of purchase 

finance arrangements. 

Moreover, autos are important to the 

financial well-being of consumers 

regardless of whether the consumer 

obtains the use of a vehicle through a 

lease or a loan. Consumers rely on autos 

for their transportation needs, including 

to and from the workplace. From a 

consumer’s standpoint, whether a 

vehicle is leased or financed through a 

loan, any consumer financial law 

violation that impedes access to a 

vehicle or otherwise creates problems 

related to the loan or leasing 

arrangement can have a critical impact 

on the consumer. Thus, as interpreted 

by the Bureau, most automobile leases 

are the functional equivalent of 

purchase finance arrangements. 

The Bureau believes that typical auto 

leases also meet the remaining two 

requirements of section 1002(15)(A)(ii) 

of the Dodd-Frank Act. First, auto leases 

are generally ‘‘non-operating.’’ 

Consistent with the definition in 

Regulation Y, which governs bank 

holding companies and changes in bank 

control, the Bureau interprets ‘‘nonoperating’’ to mean that the lease 

provider is not, directly or indirectly, 

engaged in operating, servicing, 

maintaining, or repairing the leased 

property during the lease term.38 Under 

most auto leases, the consumer, rather 

than the lessor, is responsible for 

ensuring the care and maintenance of 

the vehicle.39 Second, most leases have 

terms well beyond 90 days. Lease terms 

for autos typically range from 12 to 60 

months, with the majority of leases 

ranging from 24 to 48 months.40 Thus, 

the Bureau believes that most 

automobile leases readily fall under 

section 1002(15)(A)(ii) as financial 

products or services. 

However, as discussed above, the 

requirement that category (ii) leases be 

the functional equivalent of purchase 

finance arrangements means that 

coverage of leases under section 

1002(15)(A)(ii) will necessarily depend 

on a number of factors and 

circumstances that may vary between 

particular leases and institutions. Given 

the potential variance in the terms of 

lease agreements, the Bureau is 

concerned that not all automobile leases 

that materially impact consumers will 

necessarily qualify for coverage under 

section 1002(15)(A)(ii) and that market 

participants may have a difficult time 

discerning which leases meet the 

definition and which do not. Such a 

result would make the automobile 

financing larger-participant rule 

difficult to administer with respect to 

leasing and would not provide optimal 

protection to consumers. To further the 

mandate of protecting consumers and 

for ease of administering the automobile 

financing larger-participant rule, the 

Bureau is proposing to exercise its 

authority under section 

1002(15)(A)(xi)(II) of the Dodd-Frank 

Act to define certain automobile leases 

not covered under section 

1002(15)(A)(ii) as financial products or 

services within the meaning of section 

1002(15)(A) of the Dodd-Frank Act. 

Under section 1002(15)(A)(xi)(II), for 

purposes of title X of the Dodd-Frank 

Act, the Bureau may define as a covered 

financial product or service, by 

regulation: ‘‘such other financial 

product or service . . . if the Bureau 

finds that such financial product or 

service is— . . . (II) permissible for a 

bank or for a financial holding company 

to offer or to provide under any 

provision of a Federal law or regulation 

applicable to a bank or a financial 

holding company, and has, or will have, 

a material impact on consumers.’’ In 

this proposal, the Bureau would define 

the term ‘‘financial product or service’’ 

under section 1002(15)(A)(xi)(II) to 

include certain automobile leases that: 

(1) meet the requirements of section 108 

of CEBA, as implemented by 12 CFR 

part 23, and therefore are permissible 

for banks to offer or provide; and (2) are 

not the functional equivalent of 

purchase finance arrangements under 

section 1002(15)(A)(ii) of the DoddFrank Act. 

Banks and financial holding 

companies are broadly authorized to 

engage in automobile leasing. With 

respect to national banks, CEBA 

amended the National Bank Act, to add, 

among other things, 12 U.S.C. 

24(Tenth), which authorizes national 

banks to ‘‘invest in tangible personal 

property, including, without limitation, 

vehicles, manufactured homes, 

machinery, equipment, or furniture, for 

lease financing transactions on a net 

lease basis.’’ 41 Neither CEBA nor its 


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(3) Loan of replacement or substitute property 

while the leased property is being serviced; 

(4) Payment of insurance for the lessee, except 

where the lessee has failed in its contractual 

obligation to purchase or maintain required 

insurance; or 

(5) Renewal of any license or registration for the 

property unless renewal by the bank is necessary 

to protect its interest as owner or financier of the 

property.’’ 

12 CFR 23.2(f). 

42See 12 U.S.C. 24(Tenth); 12 CFR 23.2, 23.3. 

43 12 CFR 225.28(b)(3). Bank holding companies 

are limited to leases that are non-operating, as 

described above, and have a term of at least 90 days. 

Id. 

44Under the implementing regulations, ‘‘fullpayout lease’’ is defined as ‘‘a lease in which the 

national bank reasonably expects to realize the 

return of its full investment in the leased property, 

plus the estimated cost of financing the property 

over the term of the lease, from: 

(1) Rentals; 

(2) Estimated tax benefits; and 

(3) The estimated residual value of the property 

at the expiration of the lease term.’’ 

12 CFR 23.2(e). 

45For purposes of this definition, ‘‘automobile’’ 

would be defined as proposed in 12 CFR 

1090.108(a). 

46The proposed definition would also expand the 

scope of certain other Bureau authorities under title 

X of the Dodd-Frank Act. Perhaps most 

significantly, the proposed definition would expand 

the Bureau’s rulemaking authority under section 

1032 of the Dodd-Frank Act, which authorizes the 

Bureau to prescribe rules to ensure that the features 

of any consumer financial product or service are 

fully, accurately, and effectively disclosed to 

consumers in a manner that permits consumers to 

understand the costs, benefits, and risks associated 

with the product or service. In addition, the 

proposed definition would expand the scope of the 

Bureau’s authority under section 1022(c) of the 

Dodd-Frank Act to ‘‘monitor for risks to consumers 

in the offering or provision of consumer financial 

products or services, including developments in 

markets for such products or services,’’ and the 

scope of the Bureau’s authority under section 1033 

of the Dodd-Frank Act to prescribe rules for covered 

persons with respect to consumer rights to access 

information concerning consumer financial 

products or services that the consumer received 

from such person. 

47 12 CFR 1090.104(a), 1090.105(a). 

48 12 CFR 1090.106(a), 1090.107(a). 

implementing regulations require that 

such leases be the functional equivalent 

of loans, credit, or purchase finance 

arrangements.42 Similarly, under 

Regulation Y, bank and financial 

holding companies may engage in 

leasing of personal property irrespective 

of whether the leases are the functional 

equivalent of loans, credit, or purchase 

finance arrangements.43

Additionally, the Bureau believes 

that, whether or not a particular 

automobile lease qualifies as a category 

(ii) lease, all consumer automobile 

leasing, including leasing covered by 

the proposed definition, has a material 

impact on consumers. As discussed 

below, access to a vehicle is critical for 

consumers. Auto leasing is a significant 

financial obligation, and consumers are 

increasingly turning to leasing as a 

means to obtain a vehicle. The impact 

of automobile leasing on consumers and 

their financial well-being does not turn 

on whether a lease is the functional 

equivalent of a purchase finance 

arrangement. 

Accordingly, as authorized under 

section 1002(15)(A)(xi)(II) of the DoddFrank Act, the Bureau is proposing to 

define the term ‘‘financial product or 

service’’ to include extending or 

brokering leases for automobiles, where 

the lease: (1) qualifies as a full-payout 

lease 44 and a net lease, as provided by 

12 CFR 23.3(a), and has an initial term 

of not less than 90 days, as provided by 

12 CFR 23.11; and (2) is not a financial 

product or service under section 

1002(15)(A)(ii).45 The proposed 

definition meets the requirements of 

section 1002(15)(A)(xi)(II). As discussed 

above, banks and financial holding 

companies are permitted to engage in 

automobile leasing described under this 

definition, and such automobile leasing 

has a material impact on consumers. 

This proposed definition would 

ensure that such leases are subject to the 

same range of protections applicable to 

‘‘financial product[s] or service[s]’’ 

under the Dodd-Frank Act. For example, 

it would ensure that the offering or 

providing of the defined leases is 

subject to the prohibition against unfair, 

deceptive, or abusive acts or practices in 

section 1031 of the Dodd-Frank Act.46

Because leases that are not the 

functional equivalent of purchase 

finance arrangements can raise the same 

consumer protection concerns as 

category (ii) leases, the Bureau believes 

that it is appropriate to subject these 

additional leases to the Dodd-Frank Act 

provisions that apply to ‘‘financial 

product[s] or service[s].’’ 

Comprehensive coverage of automobile 

leasing will also make the Proposed 

Rule defining larger participants of the 

automobile financing market more 

accurately reflect the structure of that 

market and easier to administer by 

eliminating uncertainty about which 

types of leasing activities are counted. 

The Bureau invites comments on its 

analysis regarding the leasing market 

and this proposed definition, and 

requests data on automobile leases 

generally. 

B. 12 CFR Part 1090 Defining Larger 

Participants of Certain Consumer 

Financial Product and Service Markets 

Section 1090.101 Definitions 

The Bureau proposes to make a 

technical correction to the definition of 

‘‘nonbank covered person’’ in 

§ 1090.101 by substituting the term 

‘‘consumer financial product or service’’ 

for ‘‘consumer product or service’’ 

where it appears. With this substitution, 

the definition would read: 

Nonbank covered person means, 

except for persons described in 12 

U.S.C. 5515(a) and 5516(a): 

(1) Any person that engages in 

offering or providing a consumer 

financial product or service; and 

(2) Any affiliate of a person that 

engages in offering or providing a 

consumer financial product or service if 

such affiliate acts as a service provider 

to such person. 

Section 1090.104 Consumer Reporting 

Market 

104(a) Market-related definitions 

104(a), paragraph (iii)(D) of the 

definition of ‘‘Annual receipts’’— 

‘‘Annual receipts of affiliated 

companies’’ 

The Bureau proposes to make a 

technical correction to paragraph (iii)(D) 

of the definition of ‘‘annual receipts’’ in 

§ 1090.104(a), which governs how the 

affiliate aggregation rules apply to 

formerly affiliated companies for 

purposes of the Consumer Reporting 

Rule. For the reasons explained below, 

the correction would clarify that if a 

company is an affiliated company of the 

nonbank covered person during the 

relevant measurement period but ceases 

to be an affiliated company during the 

same period, the annual receipts of the 

nonbank covered person and the 

formerly affiliated company must be 

aggregated for the entire period of 

measurement. As noted below, the 

Bureau is proposing to make the same 

change to paragraph (iii)(D) of the 

definition of ‘‘annual receipts’’ in 

§ 1090.105(a) in the Consumer Debt 

Collection Rule. 

Under section 1024(a)(3)(B) of the 

Dodd-Frank Act, the activities of 

affiliated companies are to be aggregated 

for purposes of computing activity 

levels for the larger-participant rules. In 

the Consumer Reporting and Consumer 

Debt Collection Rules, the Bureau has 

implemented the aggregation called for 

by section 1024(a)(3)(B) by prescribing 

the addition of all the receipts of a 

nonbank covered person and its 

affiliated companies to produce the 

nonbank covered person’s annual 

receipts.47 The Bureau has prescribed 

similar calculations for account volume 

in the Student Loan Servicing Rule and 

for aggregate annual international 

money transfers in the International 

Money Transfer Rule.48

The affiliate aggregation provisions of 

each of the larger-participant rules 

address circumstances where a 


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49This aspect is addressed in paragraphs (iii)(B) 

and (iii)(D) of the definition of ‘‘annual receipts’’ in 

§ 1090.104(a), paragraphs (iii)(B) and (iii)(D) of the 

definition of ‘‘annual receipts’’ in § 1090.105(a), 

paragraphs (iii)(B) and (iii)(C) of the definition of 

‘‘account volume’’ in § 1090.106(a), and paragraph 

(iii)(B) of the definition of ‘‘aggregate annual 

international money transfers’’ in § 1090.107(a). 

50Paragraph (iii)(C) of the definition of ‘‘account 

volume’’ in § 1090.106(a) provides: ‘‘If two affiliated 

companies cease to be affiliated companies, the 

number of accounts of each continues to be 

included in the other’s account volume until the 

succeeding December 31.’’ Paragraph (iii)(B) of the 

definition of ‘‘aggregate annual international money 

transfers’’ in § 1090.107(a) provides: 

The annual international money transfers of a 

nonbank covered person must be aggregated with 

the annual international money transfers of any 

person that was an affiliated company of the 

nonbank covered person at any time during the 

preceding calendar year. The annual international 

money transfers of the nonbank covered person and 

its affiliated companies are aggregated for the entire 

preceding calendar year, even if the affiliation did 

not exist for the entire calendar year. 

51Paragraph (iii) of the definition of ‘‘annual 

receipts’’ in both § 1090.104(a) and § 1090.105(a) 

provides: 

The annual receipts of a formerly affiliated 

company are not included if affiliation ceased 

before the applicable period of measurement as set 

forth in paragraph (ii) of this definition. This 

exclusion of annual receipts of formerly affiliated 

companies applies during the entire period of 

measurement, rather than only for the period after 

which affiliation ceased. 

52See Brian McKenzie & Melanie Rapino, U.S. 

Census Bureau, Commuting in the United States: 

2009 (2011), http://www.census.gov/prod/

2011pubs/acs-15.pdf. 

53See TransUnion, New Developments around 

the Consumer Payment Hierarchy (2014), http://

media.marketwire.com/attachments/201403/

233081_

PaymentHierarchyInfographic2014FINAL.jpg (Full 

report available at http://

www.transunioninsights.com/studies/

behaviorstudy). 

54Fed. Res. Bank of N.Y., Quarterly Report on 

Household Debt and Credit (May 2014), http://

www.newyorkfed.org/householdcredit/2014-q1/

data/pdf/HHDC_2014Q1.pdf. According to the New 

York Federal Reserve, ‘‘auto loans’’ are ‘‘loans taken 

out to purchase a car, including Auto Bank loans 

provided by banking institutions (banks, credit 

unions, savings and loan associations), and Auto 

Finance loans, provided by automobile dealers and 

automobile financing companies.’’ 

55 In addition to financing the initial acquisition 

of an automobile, some consumers refinance their 

existing automobile loans. Consumers typically 

refinance their automobile loans to lower their loan 

interest rates to achieve lower monthly payments. 

The level of refinancing depends on trends in 

interest rate levels over the term for most auto 

loans, which ranges from three to seven years. 

56As stated above, at the end of the first quarter 

of 2014, leases comprised approximately 30 percent 

of new vehicle automotive financing transactions, 

which is up from about 20 percent five years ago. 

See Zabritski, supra note 25. 

57Although dealers may also engage in some 

automobile financing activities, they are not 

included for purposes of this discussion of market 

participants. 

58Unlike captives, however, not all BHPH finance 

companies are associated with specific automobile 

dealers. The Bureau is aware of BHPH finance 

companies that provide financing to independentlyowned BHPH dealer franchises. 

company becomes affiliated with a 

nonbank covered person or ceases to be 

affiliated with the nonbank covered 

person during the relevant measurement 

period.49 For simplicity and 

completeness of coverage, the Bureau 

believes it is appropriate in both 

circumstances to aggregate the activity 

of the company with that of the 

nonbank covered person for the entire 

period of measurement, even though the 

company was an affiliated company of 

the nonbank covered person for only 

part of the measurement period. 

This is the approach used in the 

Student Loan Servicing Rule’s 

definition of ‘‘account volume’’ and the 

International Money Transfer Rule’s 

definition of ‘‘aggregate annual 

international money transfers.’’ 50 It is 

also the approach that the Bureau 

intended to adopt in the Consumer 

Reporting and Consumer Debt 

Collection Rules. However, the language 

addressing aggregation of formerlyaffiliated companies in the definition of 

‘‘annual receipts’’ in those rules is 

unclear.51 To clarify the operation of 

those paragraphs, the Bureau proposes 

to replace the final sentence of 

paragraph (iii)(D) of § 1090.104(a)’s 

definition of ‘‘annual receipts’’ with: 

‘‘The annual receipts of a nonbank 

covered person and its formerly 

affiliated company are aggregated for the 

entire period of measurement if the 

affiliation ceased during the applicable 

period of measurement as set forth in 

paragraph (ii) of this definition.’’ 

Section 1090.105 Consumer Debt 

Collection Market 

105(a) Market-related definitions 

105(a), paragraph (iii)(D) of the 

definition of ‘‘Annual receipts’’— 

‘‘Annual receipts of affiliated 

companies’’ 

For the same reasons described above 

with respect to § 1090.104(a), the 

Bureau proposes to replace the final 

sentence of paragraph (iii)(D) of 

§ 1090.105(a)’s definition of ‘‘annual 

receipts’’ with: ‘‘The annual receipts of 

a nonbank covered person and its 

formerly affiliated company are 

aggregated for the entire period of 

measurement if the affiliation ceased 

during the applicable period of 

measurement as set forth in paragraph 

(ii) of this definition.’’ 

Section 1090.108 Automobile 

Financing Market 

The Bureau is proposing § 1090.108 to 

define larger participants of the 

automobile financing market because of 

the important role that automobiles and 

related financing play in consumers’ 

lives. Autos have become indispensable 

for most working individuals, with 

nearly 90 percent of the workforce 

commuting to work by car, and most 

driving alone.52 Consumers’ reliance on 

vehicles is underscored by recent 

studies on repayment patterns, which 

show that consumers pay their auto 

loans before other secured and 

unsecured debt.53 Auto loans are the 

third largest category of outstanding 

household debt, behind mortgage and 

student loans. In the first quarter of 

2014, consumers in the United States 

had 87.4 million outstanding auto loans 

valued at nearly $900 billion.54

As stated above, the Bureau is 

proposing to define a market for 

automobile financing that would 

include grants of credit for the purchase 

of an automobile, refinancings of such 

credit obligations and any subsequent 

refinancings thereof, and purchases or 

acquisitions of such credit obligations 

(including refinancings). It would also 

include automobile leases and 

purchases or acquisitions of automobile 

lease agreements. While a significant 

number of consumers obtain credit to 

purchase their automobile,55 in recent 

years, consumers have begun to migrate 

more towards leasing agreements. 

Leasing is growing quickly as a 

proportion of new vehicle financing.56

Under the proposed automobile 

financing market, nonbank participants 

include: (1) Specialty finance 

companies, (2) ‘‘captive’’ nonbanks 

(commonly referred to as ‘‘captives’’), 

and (3) Buy Here Pay Here (BHPH) 

finance companies.57 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 for the primary purpose 

of facilitating their parent companies’ 

and associated franchised dealers’ auto 

sales. 

BHPH finance companies are similar 

to captives in that they are associated 

with certain BHPH dealers,58 which 

traditionally focus on subprime and 

deep subprime borrowers. While BHPH 

dealers are mostly independentlyowned entities that serve as the primary 

lender and receive payments directly 

from consumers, some larger BHPH 

dealers will sell or assign their contracts 

to specific BHPH finance companies 

once the contract has been 

consummated with the consumer. 


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59The BHPH segment of the market primarily 

serves deep subprime borrowers. BHPH automobile 

dealers generally are indifferent to the consumers’ 

automobile choice. Typically, only after the dealer 

assesses consumers’ creditworthiness and 

determines their maximum monthly payment does 

the dealer present automobile options. 60Experian Automotive’s AutoCount database is 

a vehicle database that collects monthly transaction 

data from State Departments of Motor Vehicles 

(DMVs). See also infra note 79 and accompanying 

text. 

61To reach this estimate, the Bureau considered 

data from Experian Automotive’s AutoCount 

database for calendar year 2013, with several 

adjustments. First, transactions with no lender 

listed were excluded from the sample. Second, 

entities with fewer than 360 loans and leases on an 

annual basis were excluded from the sample. Third, 

entities that were identified by Experian 

Automotive as ‘‘Other’’ in the lender type category 

were also excluded from the sample. Fourth, the 

Bureau excluded entities that already fall within the 

Bureau’s supervisory authority or that it identified 

as BHPH dealers and title lenders. In some cases, 

entities were also consolidated due to known 

affiliations. 

62These estimates were derived using the same 

methodology described in supra note 61. 

63Such sources include depository institutions, 

nonbank affiliates of a depository institution, 

independent nonbanks, and captives. 

64See Delvin Davis, Ctr. For Responsible 

Lending, The State of Lending in America & Its 

Impact on U.S. Households (Dec. 2012), available 

at http://www.responsiblelending.org/state-oflending/reports/4-Auto-Loans.pdf. 

65The Bureau is aware that an indirect auto 

lender may also have a policy that allows the dealer 

to mark up the interest rate above the indirect auto 

lender’s buy rate. In the event that the dealer 

charges the consumer an interest rate that is higher 

than the lender’s buy rate, the lender may pay the 

dealer what is typically referred to as ‘‘reserve’’ (or 

‘‘participation’’), compensation based upon the 

difference in interest revenues between the buy rate 

and the actual note rate charged to the consumer 

in the retail installment contract executed with the 

dealer. Dealer reserve is one method lenders use to 

compensate dealers for the value they add by 

originating loans and finding financing sources. The 

exact computation of compensation based on dealer 

markup varies across lenders and may vary between 

programs at the same lender. 

66See supra note 63 and accompanying text. 

67Fed. Reserve Sys., Glossary, Keys to Vehicle 

Leasing (Mar. 13, 2013), available at http://

www.federalreserve.gov/pubs/leasing/glossary.htm. 

68This does not apply to those auto dealers, such 

as BHPH dealers, who serve as the primary lender. 

69Zabritski, supra note 25, at 39. 

However, these BHPH finance 

companies do not focus on a particular 

auto manufacturer unlike captives 

whose primary purpose is to extend 

credit to consumers who want to 

purchase or lease a specific 

manufacturer’s vehicles.59

According to the Bureau’s estimates 

based on Experian Automotive’s 

AutoCount® database,60 the proposed 

automobile financing market includes 

over five hundred nonbank automobile 

lenders 61 and is fairly concentrated. As 

measured by the number of transactions 

identified in the AutoCount Lender 

ReportSM, fewer than 40 entities 

comprise over 90 percent of the auto 

loan and lease transactions in the 

nonbank market.62 The top tier of this 

market is dominated by large captives. 

The other large companies in the 

nonbank automobile financing market 

are either specialty finance companies 

or BHPH finance companies. The lower 

tiers of the nonbank market are 

comprised generally of smaller regional 

specialty finance companies. 

Auto credit is provided both through 

direct and indirect channels creating 

different dynamics for consumers and 

industry participants. In the direct 

lending channel, a consumer seeks 

credit directly from the financing 

source, whereas in the indirect lending 

channel, the dealer typically facilitates 

a loan from a third-party finance 

source.63 Depository institutions and 

credit unions have an advantage in the 

direct lending space because these 

entities often have a pre-existing 

relationship with consumers. Captives 

and other specialty finance companies 

are more active in the indirect channel. 

Most consumers who finance the 

purchase of an automobile—roughly 80 

percent—use the indirect channel and 

look to automobile dealers to facilitate 

their purchase loans.64

With indirect lending, dealers rather 

than consumers typically select the 

lender who will provide the financing. 

Upon completion of the vehicle 

selection process, the dealer usually 

collects basic information regarding the 

applicant and uses an automated system 

to forward that information to 

prospective indirect automobile lenders. 

After evaluating the applicant, indirect 

auto lenders may provide the dealer 

with purchase eligibility criteria or 

stipulations including, but not limited 

to, a risk-based ‘‘buy rate’’ that 

establishes a minimum interest rate at 

which the lender is willing to purchase 

a retail installment sales contract 

executed between the consumer and the 

dealer for the purchase of the vehicle.65

A franchised dealer often can choose 

from a selection of funding sources.66

However, a franchised dealer that is 

affiliated with a manufacturer can be 

incentivized to use a captive through 

mechanisms such as promotional 

discounts or limited-time financing 

offers that can be used to attract 

consumers. An independent auto dealer, 

which is not associated with a specific 

manufacturer or brand, typically does 

not have access to captive finance 

sources but will have access to other 

indirect sources, including depository 

institutions engaged in indirect lending 

as well as specialty finance companies. 

With the relevant eligibility criteria 

and stipulations, the dealer then selects 

the indirect lender that will finance the 

loan to the consumer and extends the 

loan through a retail installment sales 

contract that the indirect lender 

purchases or acquires. The dealer is 

typically compensated for arranging 

indirect financing. For indirect 

automobile loans, the indirect 

automobile lender typically becomes 

responsible for servicing the loan and 

consumers will then make loan 

payments to the lender. 

Similarly, leases may be obtained 

through direct or indirect channels, 

although most are through indirect 

channels. To purchase an automobile 

lease from a dealer, finance sources 

express their interest by providing the 

dealer with the relevant terms of a lease 

similar to those considered for a loan. 

These terms can include a ‘‘money 

factor,’’ which establishes how much a 

consumer will be paying in finance 

charges, and the length or term of the 

lease.67 However, in a lease, a finance 

source will also quote a residual value, 

which is one of the elements comprising 

both the consumer’s monthly payments 

and the consumer’s pre-determined 

purchase option cost at the end of the 

lease term. As a practical matter, few 

auto dealers enter into a financing or 

leasing arrangement with a consumer 

unless there is an indirect lender or 

lessor who will purchase the retail 

installment sales contract or leasing 

contract.68

Refinancing of an existing credit 

obligation can enable a consumer to 

reduce his or her monthly auto 

payment. The refinancing market is 

highly dependent on interest rates and, 

thus, activity typically increases as rates 

decrease relative to the initial rate at 

origination. However, the average auto 

loan term for a new vehicle is relatively 

short at around 66 months,69 and market 

rates during the loan repayment period 

typically do not differ much from the 

rates at origination. These dynamics 

explain why the Bureau believes that 

overall refinancing volumes comprise 

only a small niche of the broader auto 

financing market. Unfortunately, there 

is limited data available pertaining to 

refinancing volume because, among 

other things, publicly traded market 

participants generally tend to 

consolidate refinancing activity within 

origination activity for financial 

reporting purposes. 

Section 1090.108(a) Market-Related 

Definitions 

Unless otherwise specified, the 

definitions in § 1090.101 should be used 

when interpreting terms in this 

Proposed Rule. The Proposed Rule 

would define additional terms relevant 


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70As noted above, this larger-participant rule is 

only one in a series of rulemakings. 

71 12 U.S.C. 5514(a)(3)(B) (‘‘For purposes of 

computing activity levels under [12 U.S.C. 

5514(a)(1)] or rules issued thereunder, activities of 

affiliated companies (other than insured depository 

institutions or insured credit unions) shall be 

aggregated.’’). 

72Under section 1029(f)(1) of the Dodd-Frank Act, 

the term ‘‘motor vehicle’’ means: (A) Any selfpropelled vehicle designed for transporting persons 

or property on a street, highway, or other road; (B) 

recreational boats and marine equipment; (C) 

motorcycles; (D) motor homes, recreational vehicle 

trailers, and slide-in campers as those terms are 

defined in section 571.3 and 575.103(d) of title 49, 

Code of Federal Regulations, or any successor 

thereto; and (E) other vehicles that are titled and 

sold through dealers. 12 U.S.C. 5519(f)(1). 

to the proposed automobile financing 

market. These terms include ‘‘aggregate 

annual originations,’’ which the 

Proposed Rule would use as the 

criterion for assessing larger-participant 

status; ‘‘annual originations’’; 

‘‘automobile’’; ‘‘automobile financing’’; 

‘‘automobile lease’’; and ‘‘refinancings.’’ 

The Bureau seeks comment on each of 

the definitions set forth in the Proposed 

Rule and any suggested additions, 

clarifications, modifications, or 

alternatives. 

Aggregate annual originations. The 

Bureau is proposing to use aggregate 

annual originations as the criterion to 

assess whether a nonbank covered 

person is a larger participant of the 

automobile financing market. Proposed 

§ 1090.108(a) would define the term 

‘‘aggregate annual originations’’ as the 

sum of the number of annual 

originations of a nonbank covered 

person and the number of annual 

originations of each of the nonbank 

covered person’s affiliated companies, 

as calculated according to instructions 

set forth in the proposed regulation and 

as discussed below. 

Annual originations. Proposed 

§ 1090.108(a) would define the term 

‘‘annual originations’’ to mean the sum 

of the following transactions for the 

preceding calendar year: Grants of credit 

for the purchase of an automobile, 

refinancings of such credit obligations 

and any subsequent refinancings 

thereof, and purchases or acquisitions of 

such credit obligations (including 

refinancings). It would also include 

automobile leases and purchases or 

acquisitions of automobile lease 

agreements. Only originations involving 

automobiles primarily used for 

personal, family or household purposes 

would be counted as annual 

originations for purposes of this largerparticipant rule. 

The Bureau proposes to exclude from 

annual originations any investments in 

asset-backed securities. Automobile 

asset-backed securities are investment 

vehicles in which the principal and 

interest payments from automobile 

loans serve as collateral for bonds sold 

to investors and do not generally alter 

the contractual obligation between the 

consumer and the entity that granted the 

credit or services the loan. Accordingly, 

the Bureau does not believe such 

transactions should be considered as 

annual originations under the Proposed 

Rule. The Bureau solicits comment as to 

whether this proposed exclusion for 

asset-backed securities is appropriate 

and whether the Bureau should define 

the term ‘‘asset-backed securities’’ in 

proposed § 1090.108(a). 

The Bureau is also considering 

whether to include other types of 

automobile-secured loans. These could 

include, for example, automobile title 

loans, in which a lender extends credit 

to a consumer that is secured by the title 

to an automobile that the consumer 

owns. The Bureau is proposing to define 

a market for automobile financing that 

does not include automobile title loans 

because the Bureau believes that this 

financial product or service is 

substantially different from automobile 

financing activities. For example, auto 

title loans are generally provided by 

companies that do not compete with 

lenders that finance the acquisition of a 

vehicle. Loans provided by auto title 

lenders typically are not used for the 

activities identified in the criterion to 

measure market activity, such as the 

grant of credit to purchase an 

automobile or to refinance an existing 

credit obligation. Further, auto title 

loans are generally significantly shorter 

in term and smaller in size than loans 

used to purchase an automobile or to 

refinance an existing automobile loan. 

The Bureau thus believes that auto title 

loans might be better analyzed 

separately from the automobile 

financing market as part of a future 

larger-participant rulemaking.70

However, the Bureau solicits feedback 

on whether it should define the market 

for automobile financing and annual 

originations to include other types of 

loans secured by automobiles and, if so, 

whether it is appropriate to use the 

same criterion and threshold for such 

loans as proposed here or whether an 

alternative criterion and threshold 

would be preferable. The Bureau also 

solicits comments on data sources that 

the Bureau might use in analyzing other 

automobile-secured loans like 

automobile title loans that are not used 

to purchase the vehicle. 

Aggregating the annual originations of 

affiliated companies. Under the DoddFrank Act, the activities of affiliated 

companies are to be aggregated for 

purposes of computing activity levels 

for rules—like this Proposed Rule—to 

determine larger participants in 

particular markets for consumer 

products or services under section 

1024(a)(1).71 Therefore, the Proposed 

Rule would define the ‘‘aggregate 

annual originations’’ for each nonbank 

covered person as the sum of the 

number of annual originations of the 

covered entity and the number of 

annual originations of all its affiliated 

companies. For purposes of computing 

the covered person’s aggregate annual 

originations, the annual originations of 

each affiliated company would first be 

calculated separately and then 

aggregated with the originations of the 

covered entity. 

Paragraph (ii) of the proposed 

definition of ‘‘aggregate annual 

originations’’ would set forth the 

method of aggregating the annual 

originations of a nonbank covered 

person and its affiliated companies 

when affiliation has started or ended 

within the preceding calendar year. It 

would provide that the annual 

originations of a nonbank covered 

person must be aggregated with the 

annual originations of any person that 

was an affiliated company of the 

nonbank covered person at any time 

during the preceding calendar year. The 

annual originations of a nonbank 

covered person and its affiliated 

companies would be aggregated for the 

entire preceding calendar year, even if 

the affiliation did not exist for the entire 

calendar year. This provision would not 

apply, however, if the affiliated 

company is a dealer that is excluded by 

proposed § 1090.108(c), which is 

discussed below. 

Automobile. Proposed § 1090.108(a) 

would define ‘‘automobile’’ to mean any 

self-propelled vehicle primarily used for 

personal, family, or household purposes 

for on-road transportation. The 

proposed definition would apply to 

both new and used vehicles. The 

proposed definition would not include 

motor homes, recreational vehicles 

(RVs), golf carts, and motor scooters. 

The proposed definition of 

‘‘automobile’’ was informed by the 

definition of ‘‘motor vehicle’’ in section 

1029(f) of the Dodd-Frank Act,72 but 

includes modifications to limit its 

application to vehicles primarily used 

for personal, family, or household 

purposes for on-road transportation. The 

definition of ‘‘motor vehicle’’ found in 

the Dodd-Frank Act encompasses a 

wide range of vehicles, and the Bureau 

believes that using such a broad 

definition in this larger-participant 

rulemaking would make the Proposed 


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73The Bureau notes that this larger-participant 

rule is only one in a series of rulemakings and the 

Bureau could address the financing of other 

vehicles or categories of vehicles not covered under 

this Proposed Rule in a separate rulemaking should 

it determine it appropriate to do so. 

74 12 U.S.C. 5481(15)(A)(ii). 

75 12 CFR 1026.20. 

76 12 CFR 1026.20, comment 20(a)–5. 

77See id. 

78By contrast, under Regulation Z, such 

transactions are omitted from the definition of 

‘‘refinancing’’ but are nevertheless subject to 

disclosure and other requirements as a new 

transaction. Id. 

Rule difficult to administer. Consistent 

with the definition of ‘‘motor vehicles,’’ 

the proposed definition of ‘‘automobile’’ 

would cover vehicles such as cars, 

sports utility vehicles, light-duty trucks, 

and motorcycles. However, because the 

proposed definition is limited to 

vehicles primarily used for personal, 

family, or household purposes, heavyduty trucks, buses, or ambulances are 

excluded as they are designed for and 

primarily used for commercial 

purposes. 

Certain types of motor vehicles, such 

as motor homes, recreational vehicles 

(RVs), golf carts and motor scooters, are 

in markets that differ from those of the 

vehicles captured in the proposed 

definition of ‘‘automobile.’’ Although 

the Bureau does not have sufficient data 

on these other market segments, the 

Bureau does not believe that financing 

for the types of motor vehicles that are 

excluded from its proposed definition of 

‘‘automobile’’ is done on the same scale 

as financing of vehicles used by 

consumers as transportation to work or 

to carry out their errands and other 

daily activities. Thus, the Bureau 

believes that the vehicles excluded from 

the definition likely warrant different 

larger-participant criteria and thresholds 

if they were included in the market 

defined for this Proposed Rule. 

However, the Bureau seeks comment 

and additional market data related to 

these assumptions. The Bureau also 

seeks comment on its proposed 

definition of ‘‘automobile,’’ specifically 

whether the proposed definition should 

address other vehicles or types of 

vehicles, and whether motorcycles 

should be a separately defined term.73

Automobile financing. Proposed 

§ 1090.108(a) would define the term 

‘‘automobile financing’’ to mean 

providing the transactions enumerated 

under the definition of the term ‘‘annual 

originations’’ as defined in proposed 

§ 1090.108(a). Thus, under the Proposed 

Rule, ‘‘automobile financing’’ would 

mean granting credit for the purpose of 

purchasing an automobile; refinancing 

existing credit obligations or previously 

refinanced credit obligations that had 

been made for the purchase of an 

automobile; purchasing or acquiring 

such credit obligations (including 

refinancings); providing automobile 

leases; and purchasing or acquiring 

automobile lease agreements. The 

Bureau believes this proposed definition 

reflects the number of consumer loans 

and leases made or facilitated (through 

purchases of the loans and leases) 

regarding one of the most important 

nonfinancial assets to American 

households. 

Automobile lease. Proposed 

§ 1090.108(a) would define the term 

‘‘automobile lease’’ to mean a lease for 

the use of an automobile, as that term 

is defined in this Proposed Rule, that is 

a financial product or service under 

either section 1002(15)(A)(ii) of the 

Dodd-Frank Act or proposed § 1001.2(a). 

A lease for the use of an automobile is 

a financial product or service under 

section 1002(15)(A)(ii) if it: (1) Is the 

functional equivalent of a purchase 

finance arrangement; (2) is on a nonoperating basis; and (3) has an initial 

term of at least 90 days.74 As explained 

above, the Bureau believes that most 

automobile leases meet these 

requirements. The Bureau also believes 

that those automobile leases that are not 

the functional equivalent of purchase 

finance arrangements, and therefore do 

not fall under section 1002(15)(A)(ii), 

would nevertheless likely be covered by 

the proposed new category of ‘‘financial 

product or service’’ under proposed 

§ 1001.2(a). Proposed § 1001.2(a) is 

guided by the requirements in 12 CFR 

23.2(d)(1), which implement the 

product-related requirements for leases 

under CEBA. An automobile lease 

would be a financial product or service 

under proposed § 1001.2(a) as long as 

(1) the lease qualifies as a full-payout 

lease and a net lease, as required under 

12 CFR 23.3(a); (2) the lease has an 

initial term of at least 90 days, as 

required under 12 CFR 23.11; and (3) 

the lease does not meet the 

requirements for a financial product or 

service under section 1002(15)(A)(ii). 

Refinancing. The Bureau proposes to 

define the term ‘‘refinancing’’ for 

purposes of this rule by reference to 

§ 1026.20(a) of Regulation Z.75 Section 

1026.20(a) defines ‘‘refinancing’’ for 

closed-end credit transactions, 

including those related to the purchase 

of automobiles. If a transaction is 

determined to be a ‘‘refinancing’’ under 

§ 1026.20(a), a ‘‘new transaction’’ has 

occurred and the creditor must provide 

the consumer with disclosures, among 

other things. Under Regulation Z, a 

refinancing occurs only when an 

existing obligation is satisfied and 

replaced by the original creditor or a 

holder or servicer of the original 

obligation, and a new obligation is 

undertaken by the same consumer. It is 

noted that if a new creditor refinances 

an existing credit obligation, it is 

considered a new transaction rather 

than a refinancing for purposes of 

Regulation Z without reference to 

whether satisfaction and replacement 

occurs.76 Under § 1026.20(a), whether 

satisfaction and replacement has 

occurred is determined based on the 

parties’ contract and applicable state 

law. Section 1026.20(a) also provides 

certain exceptions to the requirement 

for satisfaction and replacement. 

The definition of ‘‘refinancing’’ in 

proposed § 1090.108(a) mirrors the 

Regulation Z definition except that the 

nonbank covered person is not required 

to be the original creditor or a holder or 

servicer of the original obligation to fall 

under the definition.77 Thus, as applied 

to this proposal, a nonbank covered 

person would be required to include in 

its aggregate annual originations any 

grant of credit for the purchase of an 

automobile that satisfies and replaces an 

existing credit obligation, even if the 

nonbank covered person is not the 

original creditor, holder or servicer of 

the existing credit obligation. The 

Bureau believes it is appropriate to 

include refinancing activity conducted 

by third parties as part of the 

automobile financing market.78 As in 

Regulation Z, proposed § 1090.108(a) 

would require that to be a refinancing, 

both the existing and the new grant of 

credit must involve the same borrower. 

As an alternative, the Bureau is 

considering whether it would be 

preferable to propose a new definition 

of ‘‘refinancing’’ for purposes of the 

Proposed Rule. Auto finance companies 

that grant credit secured by a vehicle are 

already subject to § 1026.20(a). The 

Bureau believes that using the 

Regulation Z definition would avoid 

adding regulatory complexity that could 

arise through the creation of a new 

definition for purposes of this largerparticipant rulemaking, but invites 

comments on this approach and 

whether the Regulation Z definition of 

‘‘refinancing’’ with the modification 

described above is appropriate for 

purposes of the Proposed Rule. 

Finally, as discussed above, the 

Bureau does not have a reliable data 

source pertaining to refinancings in the 

automobile market. Although the 

Bureau is aware that refinancings occur, 

particularly when interest rates are 

declining, there is no standard reporting 

available that describes what percentage 

of the total market for automobile 


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79The AutoCount data cover transactions in every 

state, excluding Oklahoma, Wyoming, Rhode Island 

and Delaware. 

80Experian Automotive’s AutoCount as adjusted 

by the CFPB, see supra note 61. 

81 Id. 

82 Id. The Bureau assumes that an average 

consumer only enters into one auto loan or lease in 

a given year. 

83 Id. 

financing is comprised of refinancings 

and what part of the automobile 

refinancing market is provided by 

entities that would be subject to the 

Proposed Rule. Thus, to better 

understand this segment of the market, 

the Bureau seeks data on refinancing 

activity in the market and the market 

participants that engage in refinancing. 

The Bureau also seeks comment on its 

proposal to include refinancings in the 

proposed definition of ‘‘annual 

originations’’ and in the market 

definition of ‘‘automobile financing.’’ 

Section 1090.108(b) Test To Define 

Larger Participants 

Criterion. The Bureau has broad 

discretion in choosing a criterion for 

assessing whether a nonbank covered 

person is a larger participant of a 

market. For any specific market, there 

might be several criteria, used alone or 

in combination, that could be viewed as 

reasonable alternatives. For the 

automobile financing market, the 

Bureau is considering a number of 

criteria, including aggregate annual 

originations, dollar volume of 

originations, and dollar volume of 

outstanding loans. The Bureau invites 

comment on these three possible criteria 

as well as suggestions for other criteria 

that commenters believe might be 

superior. 

Among these options, the Bureau 

proposes to use aggregate annual 

originations as the criterion that 

establishes which entities are larger 

participants of the automobile financing 

market. A discussion of the definition of 

‘‘aggregate annual originations’’ is set 

forth above. The Bureau expects that 

aggregate annual originations will be an 

appropriate criterion, because, among 

other things, it is a meaningful measure 

of a nonbank covered person’s level of 

participation in the automobile 

financing market and of its impact on 

consumers. The annual number of 

originations by a particular nonbank 

entity reflects the number of loans and 

leases it makes or facilitates (through 

purchases of the loans and leases) 

regarding one of the most important 

nonfinancial assets to American 

households. Further, because the term 

‘‘aggregate annual originations’’ would 

be defined, in part, in terms of how 

many loans or leases an entity granted 

or purchased, the aggregate annual 

originations criterion would generally 

correlate to the size of the entity’s loan 

and lease portfolios. 

The Bureau anticipates that nonbank 

covered persons could calculate 

aggregate annual originations without 

difficulty, should the occasion arise to 

do so. As a general matter, most market 

participants generally know the number 

of loans and leases they extend because 

they handle the servicing for these 

accounts. Further, they know the 

number of loans they make or purchase 

because they need to execute liens 

against the automobile titles. Also, 

nonbank covered persons in the 

automobile financing market will 

readily be able to ascertain aggregate 

annual originations because they are 

presumably expecting a payment for 

each loan and lease. 

The Bureau has data on a significant 

portion of annual originations, as 

defined in this Proposed Rule, from 

Experian Automotive’s AutoCount 

database. AutoCount is a vehicle 

database that collects monthly 

transaction data from State Departments 

of Motor Vehicles (DMVs). In 46 states, 

DMV title and registration information 

includes the finance source on record.79

These finance sources are listed either 

individually or categorized into lender 

type. The Bureau proposes to use the 

AutoCount Lender Report as its data 

source for this rulemaking because it is 

based on title and registration 

information filed with State DMVs and, 

thus, is likely to be objective. It is also 

national in scope. The report covers 

almost the entire United States and 

includes transactions that in many ways 

approximate the Bureau’s proposed 

definition of ‘‘annual originations.’’ The 

Bureau recognizes, however, that 

estimates of ‘‘annual originations’’ based 

on the AutoCount data may be either 

over- or under inclusive due to 

differences between what is included in 

the AutoCount data and in the Bureau’s 

proposed definitions. For example, the 

term ‘‘annual originations,’’ as defined 

in the Proposed Rule, includes 

transactions not tracked in the 

AutoCount report. Specifically, the 

Proposed Rule defines ‘‘annual 

originations’’ to include the sum of a 

nonbank covered person’s loans, leases, 

refinancings, and the purchase and 

acquisition of credit obligations 

(including refinancings) and leases. In 

contrast, the AutoCount data are less 

inclusive and track only loans and 

leases for which a title and registration 

is filed with the state DMV. Thus, 

unlike the Proposed Rule, the 

AutoCount report does not include 

refinancings and may not include all 

purchases and acquisitions of credit 

obligations and leases. Similar to the 

Proposed Rule, AutoCount excludes 

vehicles that are designed for and used 

primarily for commercial purposes. 

However, the exact scope of which 

commercial transactions are excluded in 

AutoCount may be different than in the 

Proposed Rule. The Bureau invites 

comments on this data source as well as 

suggestions for other data sources that 

commenters believe might augment the 

Bureau’s understanding and analysis of 

the market. 

Threshold. Under the Proposed Rule, 

a nonbank covered person would be a 

larger participant of the automobile 

financing market if the person has at 

least 10,000 aggregate annual 

originations. The Bureau estimates that 

the proposed threshold would bring 

within the Bureau’s supervisory 

authority about 38 entities, roughly 7 

percent of all nonbank covered persons 

in the automobile financing market.80

Based on the number of covered 

transactions, the Bureau estimates that 

these 38 entities are responsible for 

approximately 91 percent of the activity 

in the nonbank automobile financing 

market.81

The Bureau anticipates that the 

proposed aggregate annual originations 

threshold of 10,000 would allow the 

Bureau to supervise market participants 

that represent a substantial portion of 

the automobile financing market and 

that have a significant impact on 

consumers. In 2013, the 38 entities that 

the Bureau estimates would be larger 

participants under the proposed 

threshold provided loans and leases to 

approximately 6.8 million consumers.82

At the same time, this threshold would 

likely subject to the Bureau’s 

supervisory authority only entities that 

can reasonably be considered larger 

participants of the market. 

The Bureau is also considering a 

lower or higher threshold. For example, 

an aggregate annual originations 

threshold of 5,000 might allow the 

Bureau to supervise approximately 55 

entities, representing nearly 93 percent 

of activity in this market.83 While 

lowering the threshold would 

substantially increase the number of 

entities subject to supervision, the lower 

threshold would result in only a 

marginal increase in market coverage. 

The additional entities that would be 

included using this lower threshold are 

only a fraction of the size of the smallest 

entities that meet the proposed 

threshold and are mostly regional 

finance companies. In comparison, the 

Bureau estimates that an aggregate 


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84 Id. 

85 12 U.S.C. 5519. 

86As the Bureau has explained, this largerparticipant rulemaking is only one in a series of 

rulemakings, and the Bureau could address motor 

vehicle dealers identified in section 1029(b)(2) in a 

separate larger-participant rulemaking with a 

criterion and threshold that is better tailored to 

their business model and activity levels, should it 

determine that it is appropriate to do so. 

87Specifically, 12 U.S.C. 5512(b)(2)(A) calls for 

the Bureau to consider the potential benefits and 

costs of a regulation to consumers and covered 

persons, including the potential reduction of access 

by consumers to consumer financial products or 

services, the impact on depository institutions and 

credit unions with $10 billion or less in total assets 

as described in 12 U.S.C. 5516, and the impact on 

consumers in rural areas. In addition, 12 U.S.C. 

5512(b)(2)(B) directs the Bureau to consult, before 

and during the rulemaking, with appropriate 

prudential regulators or other Federal agencies, 

regarding consistency with objectives those 

agencies administer. The manner and extent to 

which the provisions of 12 U.S.C. 5512(b)(2) apply 

to a rulemaking of this kind that does not establish 

standards of conduct are unclear. Nevertheless, to 

inform this rulemaking more fully, the Bureau 

performed the analysis and consultations described 

in those provisions of the Dodd-Frank Act. 

88 12 CFR 1090.102. 

89The Proposed Rule also clarifies how to address 

aggregation of formerly-affiliated companies for 

purposes of assessing larger-participant status 

under the existing Consumer Reporting and 

Consumer Debt Collection Rules, by making 

changes to the definition of ‘‘annual receipts’’ in 

those rules. As explained above, the proposed 

changes to the affiliate aggregation provisions 

clarify the Bureau’s methodology for affiliate 

aggregation. The proposed changes would provide 

marginal benefits for market participants in the 

consumer reporting and consumer debt collection 

markets by making those rules clearer and easier to 

understand. They may, however, result in an 

additional cost to market participants that are 

seeking to assess whether they are larger 

participants, but only if they would not have 

collected information relevant to thresholds from 

formerly affiliated companies for the entire 

preceding calendar year when the affiliation ended 

during the preceding calendar year. The Bureau 

does not know the extent to which participants 

seeking to self-assess currently collect information 

relevant to thresholds from formerly affiliated 

companies. However, if the proposed clarification 

is finalized, participants seeking to self-assess could 

arrange to obtain the necessary threshold 

information in advance of ending the affiliation, 

and such arrangements would tend to mitigate the 

costs of obtaining this information. Further, as 

noted above, participants in these markets are not 

required to engage in such self-assessments. Thus, 

both the benefits and costs of these amendments 

would not be significant. 

90The Bureau has discretion in any rulemaking 

to choose an appropriate scope of analysis with 

respect to potential benefits and costs and an 

appropriate baseline. The Bureau, as a matter of 

discretion, has chosen to describe a broader range 

of potential effects to inform the rulemaking more 

fully. 

annual originations threshold of 50,000 

would allow the Bureau to supervise the 

17 very largest participants in the 

market, representing approximately 86 

percent of market activity.84 However, 

at this higher threshold the Bureau 

would not be able to supervise as varied 

a mix of nonbank larger participants 

that have a substantial impact on the 

full spectrum of consumers in the 

market. 

The Bureau seeks comment, including 

suggestions of alternatives on the 

proposed threshold for defining larger 

participants of the automobile financing 

market. 

Section 1090.108(c) Exclusion 

Proposed § 1090.108(c)(1) would 

provide that those motor vehicle dealers 

that are excluded from the Bureau’s 

authority by section 1029 of the DoddFrank Act do not qualify as larger 

participants under this section.85

Proposed § 1090.108(c)(2) would also 

exclude additional motor vehicle 

dealers that are not subject to the 

statutory exclusion—specifically, those 

motor vehicle dealers that are identified 

in section 1029(b)(2) of the Dodd-Frank 

Act and are predominantly engaged in 

the sale and servicing of motor vehicles, 

the leasing and servicing of motor 

vehicles, or both. This would exclude 

from the proposed larger-participant 

rule certain dealers that extend retail 

credit or leases to consumers without 

routinely assigning them to unaffiliated 

third parties. Although section 

1029(b)(2) provides the Bureau with 

rulemaking and other authority over 

such dealers, the Bureau has chosen to 

exclude them from the market defined 

in this Proposed Rule. These entities use 

a different business model, as described 

above, are typically much smaller in 

asset size and activity level than other 

entities that the Bureau proposes to 

include, and therefore form part of a 

separate and distinct market.86

However, nonbank covered persons that 

meet the definition of ‘‘motor vehicle 

dealer’’ under section 1029(f)(2), but are 

not predominantly engaged in the sale 

and servicing of motor vehicles, the 

leasing and servicing of motor vehicles, 

or both would not be excluded from the 

proposed larger-participant rule. 

V. Request for Comments 

The Bureau invites comment on all 

aspects of this notice of proposed 

rulemaking and on the specific issues 

on which comment is solicited 

elsewhere herein, including on any 

appropriate modifications or exceptions 

to the Proposed Rule. 

VI. Section 1022(b)(2)(A) of the DoddFrank Act 

A. Overview 

The Bureau is considering potential 

benefits, costs, and impacts of the 

Proposed Rule.87 The Bureau requests 

comment on the preliminary analysis 

presented below as well as submissions 

of additional data that could inform the 

Bureau’s analysis of the costs, benefits, 

and impacts of the Proposed Rule. In 

developing the Proposed Rule, the 

Bureau has consulted with or offered to 

consult with the Federal Trade 

Commission, the Board of Governors of 

the Federal Reserve System, the Federal 

Deposit Insurance Corporation, the 

Office of the Comptroller of the 

Currency, and the National Credit 

Union Administration regarding, among 

other things, consistency with any 

prudential, market, or systemic 

objectives administered by such 

agencies. 

The Proposed Rule would define a 

category of nonbanks that would be 

subject to the Bureau’s nonbank 

supervision program pursuant to section 

1024(a)(1)(B). The proposed category 

would include ‘‘larger participants’’ of a 

market for ‘‘automobile financing’’ 

described in the Proposed Rule. 

Participation in this market would be 

measured on the basis of aggregate 

annual originations. If a nonbank 

covered person, together with its 

affiliated companies, has aggregate 

annual originations (measured for the 

preceding calendar year) of at least 

10,000, it would be a larger participant 

in the market for automobile financing. 

As prescribed by existing § 1090.102, 

any nonbank covered person that 

qualifies as a larger participant would 

remain a larger participant until two 

years after the first day of the tax year 

in which the person last met the largerparticipant test.88 The Proposed Rule 

would also include in the definition of 

‘‘financial product[s] or service[s]’’ a 

new category of automobile leases, as 

defined by the Proposed Rule, under 

authority granted to the Bureau by 

section 1002(15)(A)(xi)(II) of the DoddFrank Act.89

B. Potential Benefits and Costs to 

Consumers and Covered Persons 

This analysis considers the benefits, 

costs, and impacts of the key provisions 

of the Proposed Rule against a baseline 

that includes the Bureau’s existing rules 

defining larger participants in certain 

markets.90 At present, there is no 

Federal program for supervision of 

nonbank covered persons in the 

automobile financing market with 

respect to Federal consumer financial 

law. The Proposed Rule extends the 

Bureau’s supervisory authority over 

larger participants of the defined 

automobile financing market. This 

includes the authority to supervise for 

compliance with the Equal Credit 

Opportunity Act (ECOA), the Truth in 

Lending Act (TILA), and the Consumer 


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91Pursuant to 12 U.S.C. 5514(e), the Bureau also 

has supervisory authority over service providers to 

nonbank covered persons encompassed by 12 

U.S.C. 5514(a)(1), which includes larger 

participants. The Bureau does not have data on the 

number or characteristics of service providers to the 

larger participants of the automobile financing 

market. The discussion herein of potential costs, 

benefits, and impacts that may result from the 

Proposed Rule generally applies to service 

providers to larger participants. 

92According to Experian Automotive, of all new 

and used auto financing transactions recorded in 

the first quarter of 2014, approximately 14 percent 

occurred through leasing arrangements, while the 

remainder used purchase financing. See Zabritski, 

supra note 25. 

93Another approach to considering the benefits, 

costs, and impacts of the Proposed Rule would be 

Leasing Act, as well as other Federal 

consumer financial laws, to the extent 

applicable. 

The Bureau notes at the outset that 

limited data are available with which to 

quantify the potential benefits, costs, 

and impacts of the Proposed Rule. As 

described above, the Bureau has utilized 

Experian AutoCount database for 

quantitative information on the number 

of market participants and their number 

and dollar volume of originations. 

However, the Bureau lacks detailed 

information about their rate of 

compliance with Federal consumer 

financial law and about the range of, 

and costs of, compliance mechanisms 

used by market participants. 

In light of these data limitations, this 

analysis generally provides a qualitative 

discussion of the benefits, costs, and 

impacts of the Proposed Rule. General 

economic principles, together with the 

AutoCount data, provide insight into 

these benefits, costs, and impacts. 

Where possible, the Bureau has made 

quantitative estimates based on these 

principles and data as well as its 

experience of undertaking similar 

supervisory activities with respect to 

depository institutions and credit 

unions. 

The discussion below describes four 

categories of potential benefits and 

costs. First, the Proposed Rule, if 

adopted, would authorize the Bureau to 

supervise certain nonbank entities in 

the automobile financing market. These 

larger participants in the market might 

respond to the possibility of supervision 

by changing their systems and conduct, 

and those changes might result in costs, 

benefits, or other impacts. Second, if the 

Bureau undertakes supervisory activity 

at specific larger participants, those 

companies would incur costs from 

responding to supervisory activity, and 

the results of the individual supervisory 

activities might also produce benefits 

and costs.91 Third, entities might incur 

certain costs as a result of their efforts 

to assess whether they would qualify as 

larger participants under the Proposed 

Rule. Fourth, including certain 

automobile leases in the Dodd-Frank 

Act definition of ‘‘financial product or 

service’’ would subject those leases to 

the prohibition on unfair, deceptive, or 

abusive acts or practices (UDAAP) 

under section 1031 of the Dodd-Frank 

Act and to Bureau authority to prescribe 

certain rules applicable to a covered 

person or service provider under section 

1031(b) of the Dodd-Frank Act. The 

proposed definition would also expand 

the Bureau’s supervisory authority, as 

described below, and these changes 

might also produce benefits and costs, 

although the Bureau does not expect 

these effects to be significant. 

In considering the costs and benefits 

of the Proposed Rule, it is important to 

note that various products or services 

are included in the proposed 

automobile financing market. Direct 

lending, where the consumer applies for 

credit directly to the financial 

institution, makes up a relatively small 

portion of the total auto loan and sales 

volume. Direct lending is currently 

dominated by traditional depository 

institutions and credit unions already 

regulated by the Bureau and other 

governmental agencies. Indirect lending, 

where a dealer—rather than the 

consumer—finds a lender willing to 

provide credit to the consumer, 

comprises a significant portion of the 

automobile financing market. In 

addition, some consumers refinance the 

credit obligation for their automobile 

after taking out the initial loan. Finally, 

leasing is the other primary way in 

which consumers can finance the use of 

a vehicle; under this arrangement a 

financial institution holds the title to 

the vehicle that the consumer leases 

under a payment plan that typically 

ends with an option to purchase the 

vehicle.92

1. Benefits and Costs of Responses to the 

Possibility of Supervision 

The Proposed Rule would subject 

larger participants of the automobile 

financing market to the possibility of 

Bureau supervision. That the Bureau 

would be authorized to undertake 

supervisory activities with respect to a 

nonbank covered person who qualified 

as a larger participant would not 

necessarily mean the Bureau would in 

fact undertake such activities with 

respect to that covered entity in the near 

future. Rather, supervision of any 

particular larger participant as a result 

of this rulemaking would be 

probabilistic in nature. For example, the 

Bureau would examine certain larger 

participants on a periodic or occasional 

basis. The Bureau’s decisions about 

supervision would be informed, as 

applicable, by the factors set forth in 

section 1024(b)(2), relating to the size 

and volume of individual participants, 

the risks their consumer financial 

products and services pose to 

consumers, the extent of State consumer 

protection oversight, and other factors 

that the Bureau may determine are 

relevant. Each entity that believed it 

qualified as a larger participant would 

know that it might be supervised and 

might gauge, given its circumstances, 

the likelihood that the Bureau would 

initiate an examination or other 

supervisory activity. 

The prospect of potential supervisory 

activity could create an incentive for 

larger participants to allocate additional 

resources and attention to compliance 

with Federal consumer financial law, 

potentially leading to an increase in the 

level of compliance. These entities 

might anticipate that by doing so (and 

thereby decreasing risks to consumers) 

they could decrease the likelihood of 

their actually being subjected to 

supervision as the Bureau evaluated the 

factors outlined above. In addition, an 

actual examination would likely reveal 

any past or present noncompliance, 

which the Bureau could seek to correct 

through supervisory activity or, in some 

cases, enforcement actions. Larger 

participants might therefore judge that 

the prospect of supervision increased 

the potential consequences of 

noncompliance with Federal consumer 

financial law, and they might seek to 

decrease that risk by curing or 

mitigating any noncompliance. Larger 

participants might thus be able to catch 

and address compliance problems at an 

earlier point when the costs of 

correcting them would be lower. 

The Bureau believes it is likely that 

many market participants would 

increase compliance in response to the 

Bureau’s supervisory activities 

authorized by the Proposed Rule. 

However, because the Proposed Rule 

itself would not require any nonbank 

covered person in the automobile 

financing market to alter its conduct, 

any estimate of the amount of increased 

compliance would require both an 

estimate of current compliance levels 

and a prediction of market participants’ 

behavior in response to a final rule. The 

data the Bureau currently has do not 

support a specific quantitative estimate 

or prediction. But, to the extent that 

nonbank entities allocate resources to 

increase their compliance in response to 

the Proposed Rule, that response would 

result in both benefits and costs to 

consumers and covered persons.93


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to focus almost entirely on the supervision-related 

costs for larger participants and omit a broader 

consideration of the benefits and costs of increased 

compliance. As noted above, the Bureau has, as a 

matter of discretion, chosen to describe a broader 

range of potential effects to inform the rulemaking 

more fully. 

94Supra note 54. 

95See Zabritski, supra note 25, at 20. 

96The Bureau recognizes that the nature of a 

larger participant’s responsibility for compliance 

with these laws may vary depending on the activity 

the larger participant engages in. For example, 

under TILA, a larger participant that purchases a 

credit obligation for the purchase of an automobile 

is likely an assignee, not a ‘‘creditor’’ under TILA, 

and as such is generally liable only for a violation 

of TILA that is ‘‘apparent on the face of the 

disclosure statement.’’ 15 U.S.C. 1641(a). 

97 12 U.S.C. 5531. 

98The CFPB Supervision and Examination 

Manual provides further guidance on how the 

UDAAP prohibition applies to supervised entities. 

CFPB, CFPB Supervision and Examination 

Manual—Version 2.0 (Oct. 2012), available at 

http://www.consumerfinance.gov/guidance/

supervision/manual. 

99Alexei Alexandrov & Xiaoling Ang, Identifying 

a Suitable Control Group Based on Microeconomic 

Theory: The Case of Escrows in the Subprime 

Market (July 3, 2014) (finding consumers not 

adversely affected by policy changes that 

implement a fixed cost), available at http://

papers.ssrn.com/sol3/papers.cfm?abstract_

id=2462128. 

a. Benefits From Increased Compliance 

Increased compliance with Federal 

consumer financial law by larger 

participants in the market for 

automobile financing would be 

beneficial to consumers who either 

finance the purchase of or lease 

automobiles, or refinance their credit 

obligation related to the purchase of 

their automobile. The number of 

individuals who could potentially be 

affected is significant. As noted above, 

data from the first quarter of 2014 show 

auto lenders holding more than 87.4 

million outstanding automobile loans, 

totaling almost $900 billion.94 The 

market is even larger when taking into 

account the automobile leasing market, 

which comprised an additional 14 

percent of the automobile financing 

market in the first quarter of 2014.95

Increasing the rate of compliance with 

Federal consumer financial law would 

benefit consumers and the consumer 

financial market by providing more of 

the protections mandated by law. 

Several Federal consumer financial 

laws offer protections to consumers in 

regards to automobile financing as 

defined in the Proposed Rule, including, 

to the extent applicable, TILA and 

Regulation Z, the Fair Credit Reporting 

Act and Regulation V, the Consumer 

Leasing Act and Regulation M, ECOA 

and Regulation B, and the GrammLeach-Bliley Act and Regulation P.96

More broadly, the Bureau would 

examine whether larger participants of 

the automobile financing market engage 

in UDAAPs.97 Conduct that does not 

violate an express prohibition of another 

Federal consumer financial law may 

nonetheless constitute a UDAAP.98 To 

the extent that any larger participant or 

service provider is currently engaged in 

any UDAAP in connection with any 

transaction for or the offering of a 

consumer financial product or service, 

the cessation of the unlawful act or 

practice would benefit consumers. As 

the Bureau may review a larger 

participant’s conduct in relation to any 

consumer financial product or service 

during an examination, larger 

participants might improve policies and 

procedures globally in response to 

possible supervision in order to avoid 

engaging in UDAAPs. 

The possibility of supervision also 

may help make incentives to comply 

with Federal consumer financial law 

more consistent between the likely 

larger participants and depository 

institutions and credit unions, which 

are already subject to Federal 

supervision with respect to Federal 

consumer financial law. Introducing the 

possibility of Federal supervision could 

encourage entities that would likely 

qualify as larger participants to devote 

additional resources to compliance. It 

could also help ensure that the benefits 

of Federal oversight reach consumers 

who do not have ready access to 

automobile financing through 

depository institutions and credit 

unions. 

b. Costs of Increased Compliance 

The Bureau recognizes that increasing 

compliance involves costs. These costs 

may be fixed or ongoing. Nonbank 

entities in the automobile financing 

market might need to hire or train 

additional personnel to effectuate any 

changes in their practices that would be 

necessary to produce the increased 

compliance. They might need to invest 

in changes to their systems to carry out 

their revised procedures. In addition, 

they might need to develop or enhance 

compliance management systems, to 

ensure awareness of any gaps in 

compliance. Such changes would also 

require investment and might entail 

increased operating costs. 

Economic theory predicts that fixed 

costs will be absorbed by providers, 

here the entities that may qualify as 

larger participants. However, consumers 

may be adversely affected by increases 

in these costs to the extent these cost 

increases cause current providers of 

automobile financing to decrease 

volume, deter providers from increasing 

volume, or deter entry by new providers 

in the future.99 This could result in 

consumers having more restricted 

choices than they would otherwise. In 

certain situations, a decrease in the 

number of market participants could 

better enable those remaining providers 

to exercise market power, resulting in 

higher prices for consumers or 

decreased product or service quality, or 

both. 

An entity that incurs ongoing costs in 

support of increasing compliance might 

try to recoup these costs by attempting 

to pass those costs directly through to 

consumers; for example, in the case of 

the indirect channel, this could occur 

through lowering fees or other forms of 

compensation paid to dealers and other 

entities. Whether and to what extent 

either change would occur depends on 

the relative elasticities of supply and 

demand in the automobile financing 

market. These elasticities can vary 

across products or services that would 

be covered by the Proposed Rule and 

may be influenced by the presence of 

substitute products or services as well 

as the availability of information, which 

would influence the perceived 

availability of substitute products or 

services. For example, larger 

participants of the automobile financing 

market may be in competition with 

depository institutions or credit unions 

(or affiliates thereof) that are already 

subject to supervision by the Bureau 

and/or Federal prudential regulators 

with respect to Federal consumer 

financial law. To the extent the 

Proposed Rule would result in an 

increase in the costs faced by larger 

participants, that increase would be a 

competitive benefit to banks and credit 

unions with sufficient liquidity to 

expand their financing operations. 

Competition from banks and credit 

unions might reduce the ability of larger 

participants to pass through cost 

increases to consumers, dealers, or other 

entities as they may instead seek 

alternate sources of financing. 

Moreover, consumers might respond to 

such a cost increase by reducing the 

amounts they are willing to pay in other 

aspects of the automobile purchase 

transaction, while dealers could 

respond to decreased levels of financing 

revenues shared with them by larger 

participants by either attempting to 

increase revenues derived from other 

areas of the automobile purchase 

transaction, such as the stated price of 

the vehicle or costs of accessories, or 

bearing the loss of revenue. 

In considering any potential price 

effect of the Proposed Rule, it is 

important to take into account the fact 


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100Further potential benefits to consumers, 

covered persons, or both might arise from the 

Bureau’s gathering of information during 

supervisory activities. The goals of supervision 

include informing the Bureau about activities of 

market participants and assessing risks to 

consumers and to markets for consumer financial 

products and services. The Bureau may use this 

information to improve regulation of consumer 

financial products and services and to improve 

enforcement of Federal consumer financial law, in 

order to better serve its mission of ensuring 

consumers’ access to fair, transparent, and 

competitive markets for such products and services. 

Benefits of this type would depend on what the 

Bureau learns during supervision and how it uses 

that knowledge. For example, because the Bureau 

would examine a number of covered persons in the 

automobile financing market, the Bureau would 

build an understanding of how effective compliance 

systems and processes function in that market. 

that nonbank covered persons below the 

larger participant threshold would not 

be subject to supervision as a result of 

this rule. The costs of these nonbank 

covered persons would therefore be 

unaffected by the definition of larger 

participants in the Proposed Rule and so 

their pricing should also not be affected. 

To the extent that nonbank larger 

participants raise their prices in 

response to this rule, nonbank entities 

that are not larger participants, along 

with banks and credit unions that 

already compete in the market while 

bearing the cost of supervision, could 

potentially offer more attractive 

transaction terms relative to larger 

participants and thus deter larger 

participants from increasing prices. 

While a shift in transactions from larger 

participants toward nonbank entities 

that are not larger participants would 

mitigate some of the benefits to 

consumers of supervision of larger 

participants, the prospect of this shift 

might also reduce the likelihood that 

larger participants would choose to 

increase their prices in response to the 

Proposed Rule. 

2. Benefits and Costs of Individual 

Supervisory Activities 

In addition to the responses of market 

participants anticipating supervision, 

the possible consequences of the 

Proposed Rule would include the 

responses to and effects of individual 

examinations or other supervisory 

activities that the Bureau might conduct 

in the automobile financing market. 

a. Benefits of Supervisory Activities 

Supervisory activity could provide 

several types of benefits. For example, 

as a result of supervisory activity, the 

Bureau and an entity might uncover 

deficiencies in the entity’s policies and 

procedures. The Bureau’s examination 

manual calls for the Bureau generally to 

prepare a report of each examination, to 

assess the strength of the entity’s 

compliance mechanisms, and to assess 

the risks the entity poses to consumers, 

among other things. The Bureau would 

share examination findings with the 

examined entity because one purpose of 

supervision is to inform the entity of 

problems detected by examiners. Thus, 

for example, an examination might find 

evidence of widespread noncompliance 

with Federal consumer financial law, or 

it might identify specific areas where an 

entity has inadvertently failed to 

comply. These examples are only 

illustrative of the kinds of information 

an examination might uncover. 

Detecting and informing entities about 

such problems should be beneficial to 

consumers. When the Bureau notifies an 

entity about risks associated with an 

aspect of its activities, the entity is 

expected to adjust its practices to reduce 

those risks. That response may result in 

increased compliance with Federal 

consumer financial law, with benefits 

like those described above. Or it may 

avert a violation that would have 

occurred had Bureau supervision not 

detected the risk promptly. The Bureau 

may also inform entities about risks 

posed to consumers that fall short of 

violating the law. Action to reduce those 

risks would also be a benefit to 

consumers. 

Given the obligations nonbank 

covered persons in the automobile 

financing market have under Federal 

consumer financial law and the 

existence of efforts to enforce such law, 

the results of supervision also may 

benefit entities under supervision by 

detecting compliance problems early. 

When an entity’s noncompliance results 

in litigation or an enforcement action, 

the entity must face both the costs of 

defending its actions and the penalties 

for noncompliance, including potential 

liability for damages to private 

plaintiffs. The entity must also adjust its 

systems to ensure future compliance. 

Changing practices that have been in 

place for long periods of time can be 

expected to be relatively difficult 

because the practices may be severe 

enough to represent a serious failing of 

an entity’s systems. Supervision may 

detect flaws at a point when correcting 

them would be relatively inexpensive. 

Catching problems early can, in some 

situations, forestall costly litigation. To 

the extent early correction limits the 

amount of consumer harm caused by a 

violation, it can help limit the cost of 

redress. In short, supervision might 

benefit larger participants by, in the 

aggregate, reducing the need for other 

more expensive activities to achieve 

compliance.100

b. Costs of Supervisory Activities 

The potential costs of actual 

supervisory activities would arise in 

two categories. The first would involve 

any costs to larger participants of 

increasing compliance in response to 

the Bureau’s findings during 

supervisory activity and to supervisory 

actions. These costs would be similar in 

nature to the possible compliance costs, 

described above, that larger participants 

in general might incur in anticipation of 

possible supervisory actions. This 

analysis will not repeat that discussion. 

The second category would be the cost 

of supporting supervisory activity. 

Supervisory activity may involve 

requests for information or records, onsite or off-site examinations, or some 

combination of these activities. For 

example, in an on-site examination, 

Bureau examiners generally contact the 

entity for an initial conference with 

management. That initial contact is 

often accompanied by a request for 

information or records. Based on the 

discussion with management and an 

initial review of the information 

received, examiners determine the 

scope of the on-site exam. While on-site, 

examiners spend some time in further 

conversation with management about 

the entity’s policies, procedures, and 

processes. The examiners also review 

documents, records, and accounts to 

assess the entity’s compliance and 

evaluate the entity’s compliance 

management system. As with the 

Bureau’s other examinations, 

examinations of nonbank larger 

participants of the automobile financing 

market could involve issuing 

confidential examination reports and 

compliance ratings. The Bureau’s 

examination manual describes the 

supervision process and indicates what 

materials and information an entity 

could expect examiners to request and 

review, both before they arrive and 

during their time on-site. 

The primary cost an entity would face 

in connection with an examination 

would be the cost of employees’ time to 

collect and provide the necessary 

information. If the Proposed Rule is 

adopted, the frequency and duration of 

examinations of any particular entity 

would depend on a number of factors, 

including the size of the entity, the 

compliance or other risks identified, 

whether the entity has been examined 

previously, and the demands on the 

Bureau’s supervisory resources imposed 

by other entities and markets. 

Nevertheless, some rough estimates may 

be useful to provide a sense of the 

magnitude of potential staff costs that 

entities might incur. 


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101This estimate was derived using confidential 

supervisory Bureau data on the duration of on-site 

auto financing examinations at depository 

institutions and credit unions. For purposes of this 

calculation, the Bureau counted its auto financing 

examinations for which the on-site portion had 

been completed, while excluding the shortest and 

longest examinations to minimize the influence of 

outliers. Additionally, the Bureau counted only the 

on-site portion of an examination, which included 

time during the on-site period of the examination 

that examiners spent off-site for holiday or other 

travel considerations. However, the Bureau did not 

count time spent scoping an examination before the 

on-site portion of the examination or summarizing 

findings or preparing reports of examination 

afterwards. 

102Bureau of Labor Statistics (BLS), Occupational 

Employment Statistics, available at http://

data.bls.gov/oes/. (BLS data for ‘‘Nondepository 

Credit Intermediation’’ (North American Industry 

Classification System (NAICS) code 522200)). 

Dividing the hourly wage of a full-time compliance 

officer by 67.5 percent yields a total mean hourly 

cost (including total costs, such as salary, benefits, 

and taxes) rounded to the nearest dollar of $50 per 

hour. 

103BLS, Employer Costs for Employee 

Compensation Database, Series ID 

CMU2025220000000D, available at http://

data.bls.gov/timeseries/

CMU2025220000000D?data_tool=XGtable 

(providing wage and salary percent of total 

compensation in the credit intermediation and 

related activities private industry for the second 

quarter of 2013). All figures assume 40 hours of 

work per week. 

104The estimated average amount financed uses 

2013 origination data from AutoCount for entities 

with 360 or greater loans and leases on an annual 

basis. The dollar value listed is based solely on 

loans, as the Bureau was unable to obtain data on 

the average amount financed in lease transactions. 

That said, the Bureau believes it is unlikely that the 

estimated revenue from leasing transactions, 

including both the stream of payments over the 

course of the lease as well as the option value of 

purchase or resale price of the vehicle at the end 

of the lease, would differ in a way that materially 

impacts the relationship between the cost of 

supervision and revenues. 

The cost of supporting supervisory 

activity may be calibrated using prior 

Bureau experience in supervision. The 

Bureau considers its auto financing 

examinations at depository institutions 

and credit unions as a reasonable proxy 

for the duration and labor intensity of 

potential nonbank larger participant 

examinations. This belief arises from the 

similar role these institutions play in 

the market for automobile financing, 

where they frequently coexist as direct 

competitors to one another. 

The average duration of the on-site 

portion of Bureau bank auto financing 

examinations is approximately 9 

weeks.101 Assuming that each exam 

requires 2 weeks of preparation time by 

a larger participant’s staff prior to the 

exam as well as on-site assistance by 

staff throughout the duration of the 

exam, the Bureau assumes that the 

typical examination in this nonbank 

market would require 11 weeks of staff 

time. The Bureau has not suggested that 

counsel or any particular staffing level 

is required during an examination. 

However, for purposes of this analysis, 

the Bureau assumes, conservatively, that 

an entity might dedicate the equivalent 

of one full-time compliance officer and 

one-tenth of a full-time attorney to the 

exam. The average hourly wage of a 

compliance officer in a nonbank entity 

that operates in activities related to 

installment lending is $33.97, and the 

average hourly wage of a lawyer in the 

same industry is $83.88.102 Assuming 

that wages account for 67.5 percent of 

total compensation, the total labor cost 

of an examination would be about 

$27,611.103 The Bureau estimates that 

the cost for an entity with 10,000 

aggregate annual originations per year, 

with an average amount financed of 

$21,750 per loan origination,104 would 

be approximately 0.013 percent of total 

revenue from originations for that year. 

This is a conservative estimate in 

several respects because it reflects 

revenue only from this line of business 

and uses an average amount financed in 

combination with the minimum number 

of transactions that a larger participant 

would provide. 

The Bureau declines to predict, at this 

point, precisely how many 

examinations in the automobile 

financing market it would undertake in 

a given year. If the Proposed Rule is 

adopted, the Bureau would be able to 

undertake supervisory activity in the 

identified market; however, neither the 

Dodd-Frank Act nor the Proposed Rule 

specifies a particular level or frequency 

of examinations. Given the Bureau’s 

finite supervisory resources, and the 

range of industries over which it has 

supervisory responsibility for consumer 

financial protection, when and how 

often a given larger participant would be 

supervised is uncertain. The frequency 

of examinations would depend on a 

number of factors, including the 

Bureau’s understanding of the conduct 

of market participants and the specific 

risks they pose to consumers; the 

responses of larger participants to prior 

examinations; and the demands that 

other markets make on the Bureau’s 

supervisory resources. These factors can 

be expected to change over time, and 

the Bureau’s understanding of these 

factors may change as it gathers more 

information about the market through 

its supervision and by other means. 

3. Costs of Assessing Larger-Participant 

Status 

The larger-participant rule does not 

require nonbank entities to assess 

whether they are larger participants. 

However, the Bureau acknowledges that 

in some cases they might decide to 

incur costs in assessing whether they 

qualify as larger participants and 

potentially disputing their status. 

Larger-participant status depends on a 

nonbank’s aggregate annual 

originations, as defined in the Proposed 

Rule. An estimate of this number should 

be readily extractible from company 

records, as market participants likely 

evaluate the components of aggregate 

annual originations as part of their 

regular business practices. In addition, 

information on originations can be 

derived from title records that market 

participants maintain and publicly 

record. 

To the extent that some nonbank 

covered persons in the automobile 

financing market do not already know 

whether their aggregate annual 

originations exceed the threshold, such 

entities might, in response to the 

Proposed Rule, develop new systems to 

count their aggregate annual 

originations in accordance with the 

definition in the Proposed Rule. The 

data the Bureau currently has do not 

support a detailed estimate of how 

many nonbank entities would engage in 

such development or how much they 

might spend. Regardless, nonbank 

entities would be unlikely to spend 

significantly more on specialized 

systems to count aggregate annual 

originations than it would cost them to 

be supervised by the Bureau as larger 

participants. It bears emphasizing that 

even if expenditures on an accounting 

system successfully proved that a 

nonbank covered person in the 

automobile financing market was not a 

larger participant, it would not 

necessarily follow that this entity could 

not be supervised. The Bureau can 

supervise a nonbank entity whose 

conduct the Bureau determines, 

pursuant to section 1024(a)(1)(C), poses 

risks to consumers. Thus, a nonbank 

entity choosing to spend significant 

amounts on an accounting system 

directed toward the larger-participant 

test could not be sure it would not be 

subject to Bureau supervision 

notwithstanding those expenses. The 

Bureau therefore believes it is unlikely 

that any but a very few nonbank entities 

would undertake such expenditures. 

4. Benefits and Costs of Adding Certain 

Automobile Leases to the Definition of 

‘‘Financial Product or Service’’ 

Finally, the Bureau is proposing to 

define the term ‘‘financial product or 

service’’ to include automobile leases 

that (1) meet the requirements of section 

108 of CEBA, as implemented by 12 

CFR part 23, and are thus, permissible 

for banks to offer or provide; and (2) are 

not currently defined as a financial 


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105 15 U.S.C. 45. This prohibition is enforced by 

the Federal Trade Commission with respect to 

nonbanks under section 5 and by the prudential 

regulators with respect to banks under section 8 of 

the Federal Deposit Insurance Act, 12 U.S.C. 1818. 

106With respect to nonbanks, the Bureau 

currently supervises mortgage companies, payday 

lenders, and private student lenders, as well as 

larger participants of the consumer reporting, 

consumer debt collection, and student loan 

servicing markets, and will soon have authority to 

supervise larger participants of the international 

money transfer market. The Bureau is not aware of 

any significant automobile leasing activity by these 

entities. Thus, the Bureau believes that the 

proposed definition in itself would have at most a 

marginal impact on the scope of examinations for 

these entities. 

107With respect to the enumerated consumer 

laws, the scope of the Bureau’s authority is defined 

by the scope of those laws, not by the activities 

listed under section 1002(15)(A) of the Dodd-Frank 

Act. 

product or service under section 

1002(15)(A)(ii) of the Dodd-Frank Act. 

As explained below, the Bureau believes 

that the benefits, costs, and impacts to 

consumers and covered persons of the 

proposed definition would likely be 

small. First, the proposed definition 

would not extensively alter the 

substantive obligations of covered 

persons. Second, the proposed 

definition would not substantially 

expand the market participants brought 

under supervision as a result of the 

Proposed Rule, or for entities already 

subject to supervision, the scope of 

supervisory examinations. The Bureau 

lacks data about the range of, and costs 

of, compliance mechanisms used by 

banks or nonbank entities in the 

automobile financing market. In light of 

these data limitations, the Bureau’s 

analysis generally provides a qualitative 

discussion of the benefits, costs, and 

impacts of the proposed definition. 

a. Benefits of the Proposed Definition 

Benefits of the proposed definition 

would stem from enhanced consumer 

protections relating to automobile leases 

that would fall under the definition. As 

financial products or services under the 

Dodd-Frank Act, such leases would 

become subject to the UDAAP 

prohibition under section 1031 of the 

Dodd-Frank Act. These leases are 

already subject to a similar prohibition 

against unfair or deceptive acts or 

practices (UDAP) in or affecting 

commerce under section 5 of the 

Federal Trade Commission Act (FTC 

Act).105 The prohibitions set forth in 

section 5 of the FTC Act and section 

1031 of the Dodd-Frank Act, however, 

are not precisely co-extensive. Most 

notably, section 5 of the FTC Act does 

not include a prohibition on abusive 

acts or practices similar to that under 

section 1031 of the Dodd-Frank Act. 

Accordingly, consumers would benefit 

from the expanded scope of consumer 

protection under section 1031 of the 

Dodd-Frank Act in connection with 

transactions involving these leases. 

The proposed definition also has the 

potential to expand supervisory 

activities in two distinct ways. First, the 

proposed definition, as incorporated 

into the larger participant rule proposal, 

could bring certain nonbank entities 

under Bureau supervision by expanding 

the activities counted in determining 

whether participants of the automobile 

financing market qualify as larger 

participants and are thus subject to 

supervision under the Proposed Rule. 

To the extent that nonbank entities in 

the automobile financing market would 

be brought under supervision as a result 

of the proposed definition, both 

consumers and covered persons would 

benefit. The nature of these benefits, 

including from both the possibility of 

supervision and actual individual 

supervisory activities, are discussed 

above. 

Second, the proposed definition could 

affect the scope of supervision for other 

nonbank entities and certain banks and 

credit unions.106 For nonbank entities in 

the automobile financing market that 

would be subject to supervision as a 

larger participant even absent the 

proposed definition, the proposed 

definition would not expand the leasing 

activities of such entities subject to 

supervision. However, the proposed 

definition would expand the scope of 

supervision for leasing covered by the 

proposed definition to include 

compliance with section 1031 of the 

Dodd-Frank Act. 

With respect to banks and credit 

unions, the Bureau has supervisory 

authority over large banks with total 

assets of more than $10 billion (and 

their affiliates) for compliance with 

Federal consumer financial laws, and 

the prudential regulators exercise 

primary supervisory authority over 

other banks with total assets of $10 

billion or less for compliance with 

Federal consumer financial laws. As 

noted above, although the proposed 

definition would not expand the leasing 

activities of banks subject to 

supervision, for leasing covered under 

the proposed definition, it would 

expand the scope of that supervision to 

include compliance with section 1031 

of the Dodd-Frank Act. Again, the 

benefits to consumers of that expanded 

supervision authority would be similar 

to the general benefits of supervision 

discussed above. 

Although the Bureau has identified 

the above potential consumer benefits 

from the expanded supervision 

authority that could result from the 

proposed definition, the Bureau believes 

such benefits would be limited in 

extent. Most significantly, as discussed 

above, the Bureau believes that most 

automobile leases currently qualify as a 

financial product or service under 

section 1002(15)(A)(ii) of the DoddFrank Act. Thus, the Bureau believes 

that few, if any, nonbank participants in 

the automobile financing market will be 

subject to the Bureau’s supervision 

under the Proposed Rule as a result of 

the proposed definition. Further, for 

bank and nonbank entities that would 

be subject to supervision even absent 

the proposed definition, the Bureau 

believes that the proposed definition 

would expand only the scope of 

supervision of the leasing activities of 

such entities. Notably, even absent the 

proposed definition, all leasing 

activities of such entities would be 

subject to supervision by the Bureau or 

the prudential regulators for compliance 

with the ‘‘enumerated consumer laws’’ 

as defined in section 1002(12) of the 

Dodd-Frank Act, including the 

Consumer Leasing Act.107 And under 

the existing regulatory framework, the 

prudential regulators are authorized to 

supervise banks for compliance with 

section 5 of the FTC Act. Thus, for 

entities that would be subject to 

supervision even absent the proposed 

definition, the expanded supervision 

resulting from the proposed definition 

would be focused on the entity’s 

compliance with section 1031 of the 

Dodd-Frank Act in connection with the 

activities covered by the proposed 

definition. 

Finally, under section 1031(b) of the 

Dodd-Frank Act, the Bureau has 

authority to prescribe rules applicable to 

a covered person or service provider 

identifying as unlawful unfair, 

deceptive, or abusive acts or practices in 

connection with any transaction with a 

consumer for a consumer financial 

product or service, or the offering of a 

consumer financial product or service. 

Thus, if the proposed definition is 

finalized, the Bureau could promulgate 

such rules in connection with 

transactions for the leases that would 

fall under the proposed definition. The 

Bureau would consider the benefits, 

costs, and impacts of any such 

rulemaking as part of its analysis under 

section 1022 for that rulemaking. The 

Bureau notes that any such rulemaking 

would likely aim to provide consumers 

and covered persons with additional 

clarity in regard to identifying unfair, 

deceptive or abusive acts or practices. It 

is not possible, however, to identify 


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108The proposed definition would also benefit 

consumers by expanding the scope of certain other 

Bureau authorities under title X of the Dodd-Frank 

Act. Perhaps most significantly, the proposed 

definition would expand the Bureau’s rulemaking 

authority under section 1032 of the Dodd-Frank 

Act, which authorizes the Bureau to prescribe rules 

to ensure that the features of any consumer 

financial product or service are fully, accurately, 

and effectively disclosed to consumers in a manner 

that permits consumers to understand the costs, 

benefits, and risks associated with the product or 

service. In addition, the proposed definition would 

expand the scope of the Bureau’s authority under 

section 1022(c) of the Dodd-Frank Act to ‘‘monitor 

for risks to consumers in the offering or provision 

of consumer financial products or services, 

including developments in markets for such 

products or services,’’ and the scope of the Bureau’s 

authority under section 1033 of the Dodd-Frank Act 

to prescribe rules for covered persons with respect 

to consumer rights to access information concerning 

consumer financial products or services that the 

consumer received from such person. As with 

respect to section 1031(b) of the Dodd-Frank Act, 

it is not possible for the Bureau to identify with 

specificity here the benefits to consumers that 

might result from the Bureau’s potential future 

exercise of these authorities. The Bureau, however, 

notes that it would consider the benefits, costs, and 

impacts of any rulemakings under sections 1032 or 

1033 of the Dodd-Frank Act as part of the section 

1022 analysis for such rulemakings. 

109With respect to the enumerated consumer 

laws, the scope of the Bureau’s authority is defined 

by the scope of those laws, not by the activities 

listed under section 1002(15)(A) of the Dodd-Frank 

Act. 

110The proposed definition would also impose 

costs on covered persons by expanding the scope 

of certain other Bureau authorities under title X of 

the Dodd-Frank Act. Specifically, the proposed 

definition would expand the Bureau’s rulemaking 

authority under section 1032 of the Dodd-Frank 

Act, which authorizes the Bureau to prescribe rules 

to ensure that the features of any consumer 

financial product or service are fully, accurately, 

and effectively disclosed to consumers in a manner 

that permits consumers to understand the costs, 

benefits, and risks associated with the product or 

service. In addition, the proposed definition would 

expand the scope of the Bureau’s authority under 

section 1022(c) of the Dodd-Frank Act to ‘‘monitor 

for risks to consumers in the offering or provision 

of consumer financial products or services, 

including developments in markets for such 

products or services,’’ and the scope of the Bureau’s 

authority under section 1033 of the Dodd-Frank 

Act, to prescribe rules for covered persons with 

respect to consumer rights to access information 

concerning consumer financial products or services 

that the consumer received from such person. As 

with respect to section 1031(b) of the Dodd-Frank 

Act, it is not possible for the Bureau to identify with 

specificity here the costs to covered persons that 

may result from the Bureau’s potential future 

exercise of these authorities. The Bureau, however, 

notes that it would consider the benefits, costs, and 

impacts of any rulemakings under sections 1032 or 

1033 of the Dodd-Frank Act as part of the section 

1022 analysis for such rulemakings. 

with any greater specificity here the 

potential benefits to consumers or 

covered persons from the proposed 

definition as a result of an unspecified 

future rulemaking.108

b. Costs of the Proposed Definition 

The proposed definition would 

impose compliance costs on covered 

persons by subjecting leasing activities 

that fall under the proposed definition 

to the UDAAP prohibitions in section 

1031 of the Dodd-Frank Act. Those 

entities would incur some cost of 

compliance because, as laid out above, 

the prohibitions under section 1031 of 

the Dodd-Frank Act and section 5 of the 

FTC Act are not co-extensive: In 

particular, section 5 of the FTC Act does 

not include a prohibition on abusive 

acts or practices similar to that under 

section 1031 of the Dodd-Frank Act. 

However, given the fact that, as 

interpreted by the Bureau, section 

1002(15)(A)(ii) covers most automobile 

leases and the substantial overlap of the 

prohibited conduct under section 1031 

of the Dodd-Frank Act and section 5 of 

the FTC Act, in the Bureau’s judgment, 

the compliance costs to covered persons 

of this new prohibition would be 

limited in extent. 

Regarding supervision, the proposed 

definition, as incorporated into the 

larger participant rule proposal, could 

also bring certain nonbank entities 

under Bureau supervision and would 

affect the scope of supervision for other 

nonbank entities, banks, and credit 

unions. With respect to nonbanks, the 

proposed definition would, as discussed 

above, expand the activities counted in 

determining whether participants of the 

automobile financing market qualify as 

larger participants and are thus subject 

to supervision under the Proposed Rule. 

To the extent that larger participants in 

the automobile financing market are 

brought under supervision as a result of 

the proposed definition, such entities 

would incur costs. The nature of these 

costs, including from the possibility of 

supervision as well as from actual 

individual supervisory activities, are 

discussed above. For participants of the 

automobile financing market that would 

be subject to supervision under the 

proposed larger-participant rule even 

absent the proposed definition, the 

proposed definition would impose costs 

by expanding the leasing activities of 

such entities subject to supervision for 

compliance with section 1031 of the 

Dodd-Frank Act. With respect to banks 

and credit unions, by expanding the 

leasing activities subject to the section 

1031 UDAAP prohibition, as discussed 

above, the proposed definition would 

correspondingly expand the activities 

subject to supervision by either the 

Bureau or the prudential regulators, as 

applicable, for compliance with that 

prohibition. 

For both banks and nonbanks, the 

Bureau believes that the increased costs 

of supervision identified above would 

be small. As discussed above, the 

Bureau believes that most auto leases 

currently qualify as a financial product 

or service under section 1002(15)(A)(ii) 

of the Dodd-Frank Act. Thus, the 

Bureau believes that few, if any, 

nonbank participants in the automobile 

financing market will be brought under 

Bureau supervision under the Proposed 

Rule as a result of the proposed 

definition. Similarly, for banks and 

nonbank entities that would be subject 

to supervision even absent the proposed 

definition, the Bureau believes that the 

proposed definition would only subject 

the leasing activities of such entities to 

slightly expanded supervision. Notably, 

even absent the proposed definition, all 

leasing activities of such entities would 

be subject to supervision by the Bureau 

or the prudential regulators for 

compliance with the enumerated 

consumer laws, including the Consumer 

Leasing Act.109 And under the existing 

regulatory framework, the prudential 

regulators are authorized to supervise 

banks for compliance with section 5 of 

the FTC Act. Thus, for entities that 

would be subject to supervision even 

absent the Proposed Rule, the scope of 

expanded supervision for the limited 

activities that would fall under the 

proposed definition would be further 

limited to compliance with section 1031 

of the Dodd-Frank Act. The Bureau 

believes that the additional cost to 

entities already subject to supervision of 

being supervised for compliance with 

section 1031 of the Dodd-Frank Act 

would be minimal. 

Finally, under section 1031(b) of the 

Dodd-Frank Act, the Bureau has 

authority to prescribe rules applicable to 

a covered person or service provider 

identifying as unlawful unfair, 

deceptive, or abusive acts or practices in 

connection with any transaction with a 

consumer for a consumer financial 

product or service, or the offering of a 

consumer financial product or service. 

Thus, if the proposed definition is 

finalized, the Bureau could promulgate 

such rules in connection with 

transactions for the leases that would 

fall under the proposed definition. Such 

a rule may impose costs on covered 

persons or service providers. It is not 

possible to identify with any greater 

specificity here the potential costs to 

covered persons or service providers of 

any such hypothetical future 

rulemaking. The Bureau notes, however, 

that it would consider the benefits, 

costs, and impacts of any such 

rulemaking as part of its analysis under 

section 1022 for that rulemaking.110

5. Consideration of Alternatives 

The Bureau is considering different 

thresholds for larger-participant status 


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111The RFA, Public Law 96–354, 94 Stat. 1164 

(1980) (codified as amended at 5 U.S.C. 601–12). 112The term ‘‘‘small organization’ means any notfor-profit enterprise which is independently owned 

and operated and is not dominant in its field, 

unless an agency establishes [an alternative 

definition after notice and comment].’’ 5 U.S.C. 

601(4). The term ‘‘‘small governmental jurisdiction’ 

means governments of cities, counties, towns, 

townships, villages, school districts, or special 

districts, with a population of less than fifty 

thousand, unless an agency establishes [an 

alternative definition after notice and comment].’’ 

Id. at 601(5). The Bureau is not currently aware of 

any small governmental units or small not-for-profit 

organizations to which the Proposed Rule would 

apply. 

113 5 U.S.C. 601(3). The Bureau may establish an 

alternative definition after consultation with SBA 

and an opportunity for public comment. Id. 

114 5 U.S.C. 605(b). 

115 5 U.S.C. 609. 

in the market for automobile financing. 

One alternative the Bureau is 

considering is a larger threshold of, for 

example, 50,000 aggregate annual 

originations. Under such an alternative, 

the benefits of supervision to both 

consumers and covered persons would 

likely be substantially reduced because 

some firms impacting a large portion of 

consumers in important market 

segments, such as captive, subprime, 

and BHPH lending, would be omitted. 

On the other hand, the overall potential 

costs across all nonbank covered 

persons would of course be reduced if 

fewer firms were defined as larger 

participants and thus fewer were subject 

to the Bureau’s supervision authority on 

that basis. Similarly, the Bureau is also 

considering lower thresholds, such as 

5,000 aggregate annual originations, but 

believes this would only marginally 

increase the proportion of market 

activity that the Bureau could supervise 

while potentially exposing a greater 

number of nonbank covered persons to 

the costs listed above. However, the 

total direct costs for actual supervisory 

activity might not change substantially 

because the Bureau conducts exams on 

a risk basis and would not necessarily 

examine more or fewer entities if the 

rule’s coverage were broader or 

narrower. 

The Bureau is also considering 

various other criteria for assessing 

larger-participant status, including 

dollar volume of originations and total 

unpaid principal balances. Calculating 

either of these metrics might be more 

involved than calculating the number of 

originations for a given nonbank entity. 

If so, then a given entity might face 

greater costs for evaluating or disputing 

whether it qualified as a larger 

participant should the occasion to do so 

arise. Additionally, as some nonbank 

entities might, for example, specialize in 

sectors featuring higher average loan 

amounts or different prepayment and 

default rates than others, using aggregate 

annual originations more directly 

captures the number of consumers 

impacted by the Proposed Rule. For 

each criterion, the Bureau expects that 

it could choose a suitable threshold for 

which the set of larger participants, 

among those entities participating in the 

market today, would be similar to those 

expected to qualify under the Proposed 

Rule. Consequently, the costs, benefits, 

and impacts of this Proposed Rule 

should not depend on which criterion 

the Bureau uses. 

C. Potential Specific Impacts of the 

Proposed Rule 

1. Depository Institutions and Credit 

Unions With $10 Billion or Less in Total 

Assets, As Described in Section 1026 of 

the Dodd-Frank Act 

No depository institutions or credit 

unions of any size would become larger 

participants in the market for 

automobile leases under the Proposed 

Rule. Further, as explained above, the 

proposed change in the definition of 

financial product or service would not 

in itself have any significant effect on 

depository institutions and credit 

unions with $10 billion or less in total 

assets. Nevertheless, the Proposed Rule 

might, as discussed above, have some 

impact on depository institutions or 

credit unions that provide financing for 

automobile transactions. The Proposed 

Rule might therefore alter market 

dynamics in a market in which some 

depository institutions and credit 

unions with less than $10 billion in 

assets may be active. For example, if 

nonbanks’ price of credit for loan 

acquisitions or leases were to increase, 

or similarly were the compensation for 

selling those same products to decrease 

due to increased costs related to 

supervision, then depository 

institutions or credit unions of any size 

might benefit by the relative change in 

competitors’ costs. 

2. Impact of the Provisions on Consumer 

Access to Credit and on Consumers in 

Rural Areas 

Because the rule applies uniformly to 

automobile financing transactions of 

both rural and non-rural consumers, the 

rule should not have a unique impact on 

rural consumers. The Bureau is not 

aware of any evidence suggesting that 

rural consumers have been 

disproportionately harmed by nonbank 

entities’ failure to comply with Federal 

consumer financial law. The Bureau 

would welcome any comments that may 

provide information related to how 

automobile financing transactions affect 

rural consumers. 

VII. Regulatory Flexibility Act 

The Regulatory Flexibility Act (RFA), 

as amended by the Small Business 

Regulatory Enforcement Fairness Act of 

1996,111 requires each agency to 

consider the potential impact of its 

regulations on small entities, including 

small businesses, small governmental 

units, and small not-for-profit 

organizations.112 The RFA defines a 

‘‘small business’’ as a business that 

meets the size standard developed by 

the Small Business Administration 

(SBA) pursuant to the Small Business 

Act.113

The RFA generally requires an agency 

to conduct an initial regulatory 

flexibility analysis (IRFA) of any 

proposed rule subject to notice-andcomment rulemaking requirements, 

unless the agency certifies that the 

proposed rule would not have a 

significant economic impact on a 

substantial number of small entities.114

The Bureau also is subject to certain 

additional procedures under the RFA 

involving the convening of a panel to 

consult with small entity 

representatives prior to proposing a rule 

for which an IRFA is required.115

The undersigned certifies that the 

Proposed Rule, if adopted, would not 

have a significant economic impact on 

a substantial number of small entities 

and that an IRFA is therefore not 

required. 

The Proposed Rule would define a 

class of nonbank covered persons as 

larger participants of the automobile 

financing market and thereby would 

authorize the Bureau to undertake 

supervisory activities with respect to 

those nonbank covered persons. The 

Proposed Rule would also define the 

term ‘‘financial product[s] or service[s]’’ 

to include automobile leases that (1) 

meet the requirements of section 108 of 

CEBA, as implemented by 12 CFR part 

23, and are thus permissible for banks 

to offer or provide; and (2) are not 

currently defined as a financial product 

or service under section 1002(15)(A)(ii) 

of the Dodd-Frank Act. The Proposed 

Rule would not affect a substantial 

number of small businesses. 

Regarding insured depositories and 

credit unions, these entities are small 

businesses only if their assets are below 

$550 million. The proposed definition 

of larger participants of the automobile 

financing market applies only to 

nonbank entities, so it would have no 

impact on depository institutions or 


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116As noted above, if a nonbank covered person 

meets the larger-participant test, it would remain a 

larger participant until two years from the first day 

of the tax year in which it last met the largerparticipant test. 

117 13 CFR 121.201 (NAICS code 522220) (as 

amended by 79 FR 33647, 33655 (June 12, 2014)). 

The Bureau believes that larger participants in the 

proposed nonbank automobile financing market are 

likely to be classified under NAICS code 522220, 

sales financing. NAICS lists ‘‘automobile financing’’ 

and ‘‘automobile finance leasing companies’’ as 

index entries corresponding to this code. See U.S. 

Census Bureau, North American Industry 

Classification System, 2012 NAICS Definition 

522220 Sales Financing, available at http://

www.census.gov/cgi-bin/sssd/naics/naicsrch. 

118To generate these estimates, the Bureau first 

calculated an estimate of the average stream of 

interest income the 38 potential larger participants 

would receive over a 12-month period for all loans 

originated in 2013, as well as the income each 

entity would receive during the same period for 

loans made in previous years if the number of 

originations were identical to 2013 levels. This 

initial calculation excludes leases that also generate 

income. It also assumes no prepayment, which 

would increase receipts; no defaults, which would 

decrease receipts; and no other income generated 

from any other sources. The Bureau then analyzed 

public financial statements to verify any potential 

outliers. Using this methodology, the Bureau found 

six potential larger participants with receipts from 

loans that fall below the $38.5 million size standard 

in 2013; however, three of these entities hold a 

substantial number of leases and therefore likely 

have over $38.5 million in combined receipts from 

loans and leases, assuming lease terms similar in 

payment size to loans. Further market research 

indicates the remaining three entities likely 

generate additional revenue from other sources, 

suggesting that their annual receipts also exceed the 

relevant size standard. 

119The Bureau’s analysis concluding that few, if 

any, potential larger participants meet the relevant 

size standard is described in supra note 118. The 

Bureau also believes that it is unlikely that any 

small entities would be rendered larger participants 

of the consumer reporting or consumer debt 

collection markets by the proposed technical 

amendments to § 1090.104(a) and § 1090.105(a), 

since very few entities in those markets are likely 

to have annual receipts that are so close to the 

larger-participant threshold that inclusion of 

additional receipts from a formerly-affiliated 

company would affect their larger-participant 

status. 

120According to the 2007 Economic Census, more 

than 2,000 small firms are encompassed under the 

most applicable NAICS code (522220). U.S. Census 

Bureau, American FactFinder Database, Estab and 

Firm Size: Summary Statistics by Revenue Size of 

Establishments for the United States: 2007, 

available at http://factfinder2.census.gov/bkmk/

table/1.0/en/ECN/2007_US/52SSSZ4//

naics∼522220. Thus, even if a few small firms were 

classified as larger participants, they would 

constitute less than one percent of the small firms 

in the industry under that NAICS code. 

121As noted above, with respect to the 

enumerated consumer laws, the scope of the 

Bureau’s authority is defined by the scope of those 

laws, not by the activities listed under section 

1002(15)(A) of the Dodd-Frank Act. 

credit unions of any size. The proposed 

definition of the term financial product 

or service to include certain automobile 

leases would have little impact on 

compliance and supervision costs for 

insured depositories and credit unions. 

The leasing activities covered under the 

proposed definition would become 

subject to the UDAAP prohibition under 

section 1031 of the Dodd-Frank Act. 

Although the two are not co-extensive, 

as discussed above, a similar 

prohibition on UDAP in or affecting 

commerce under section 5 of the FTC 

Act already applies to these activities. 

Similarly, small banks are already 

subject to supervision for compliance 

with section 5 of the FTC Act, as well 

as with the enumerated consumer laws. 

In addition, most small banks have a 

very low share of leases relative to 

loans, and most of this leasing activity 

already qualifies as a financial product 

or service under section 1002(15)(A)(ii) 

of the Dodd-Frank Act. Accordingly, the 

Bureau estimates that very few to no 

small banks would experience a 

significant impact due to the proposed 

change to the definition of a financial 

product or service. 

Regarding nonbank entities, the 

Proposed Rule adopts a threshold for 

larger-participant status of at least 

10,000 aggregate annual originations.116

Under the size standard for the most 

relevant SBA classification, i.e., NAICS 

code 522220, an entity engaged in 

automobile financing is a small business 

if its annual receipts are below $38.5 

million.117 The Bureau used AutoCount 

data for 2013 combined with public 

financial statements, securitization 

filings, and additional market research 

to estimate annual receipts for each of 

the potential larger participants.118

Based on this review, it appears that 

few, if any, of the approximately 38 

potential larger participants identified 

by the Bureau’s analysis meet the small 

business threshold classification.119 The 

Bureau therefore estimates that no or 

very few small businesses would be 

classified as larger participants of the 

automobile financing market under the 

Proposed Rule.120

Finally, the proposed definition of the 

term financial product or service to 

include certain automobile leases would 

have little impact on small nonbank 

entities engaged in automobile leasing. 

As mentioned above, the vast majority 

of automobile leases likely already 

qualify as a financial product or service 

under section 1002(15)(A)(ii) of the 

Dodd-Frank Act, and so the change in 

definition is unlikely to affect the largerparticipant status of any small business. 

With respect to costs related to 

compliance, if the proposed definition 

is finalized, small nonbanks would have 

to comply with the UDAAP prohibition 

under section 1031 of the Dodd-Frank 

Act when providing automobile leases 

covered under the proposed definition. 

However, as with small banks, small 

nonbanks that provide automobile 

leases must already comply with similar 

UDAP prohibitions under section 5 of 

the FTC Act as well as the applicable 

enumerated consumer laws, such as the 

Consumer Leasing Act. Additionally, as 

explained above, there are likely to be 

few, if any, small nonbank businesses in 

the automobile financing market that 

would be subject to supervision 

irrespective of the proposed definition. 

To the extent that any small nonbanks 

are larger participants under the 

Proposed Rule, the Bureau believes that 

the proposed definition would expand 

the scope of leasing activities of such 

entities subject to supervision for 

compliance with section 1031. The 

economic impact of this expansion in 

scope would not be significant. Notably, 

even absent the proposed definition, all 

leasing activities of such entities would 

be subject to supervision by the Bureau 

for compliance with the enumerated 

consumer laws, including the Consumer 

Leasing Act.121

Considering the limited public 

information available for several of the 

smallest potential larger participants, 

the Bureau requests comment on the 

impact of the Proposed Rule on small 

nonbank entities and solicits data that 

may be relevant to this analysis. The 

Bureau also solicits comments on 

whether NAICS code 522220 or any 

other NAICS code is more appropriate 

for this market. 

Additionally, if a larger participant’s 

annual receipts fell below the $38.5 

million SBA size standard, the Proposed 

Rule would not result in a ‘‘significant 

impact’’ on the entity. The Proposed 

Rule would not itself impose any 

business conduct obligations beyond 

those described above regarding the 

automobile leases defined under the 

Proposed Rule as financial products or 

services. Furthermore, the Bureau’s 

supervisory activity would have very 

little economic impact on a supervised 

entity. When and how often the Bureau 

would in fact engage in supervisory 

activity, such as an examination, with 

respect to a larger participant (and, if so, 

the extent of such activity) would 

depend on a number of considerations, 

including the Bureau’s allocation of 

resources and the application of the 

statutory factors set forth in section 

1024(b)(2) of the Dodd-Frank Act. Given 

the Bureau’s finite supervisory 

resources, and the range of industries 

over which it has supervisory 

responsibility for consumer financial 

protection, when and how often a given 

a larger participant would be supervised 

is uncertain. Moreover, if supervisory 

activity occurred, the costs that would 

result from such activity are expected to 


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60782 Federal Register / Vol. 79, No. 195 / Wednesday, October 8, 2014 / Proposed Rules 

122As noted in part VI.B.2.b above, the Bureau 

estimates that the cost of participation in an 

examination would be approximately 0.013 percent 

of the annual revenue generated from originations 

for an entity at the threshold of 10,000 aggregate 

annual originations. 

123Because the Proposed Rule aggregates the 

activities of affiliated companies in part by adding 

together annual originations, two companies that 

are small businesses might, together, have aggregate 

annual originations over 10,000. The Bureau 

anticipates no more than a very few such cases, if 

any, in the automobile financing market. 

124As noted above, according to the 2007 

Economic Census, more than 2,000 small firms are 

encompassed under NAICS code 522220, and the 

number of those firms that are service providers for 

the 38 potential larger participants will be only a 

small fraction of that number. Other service 

providers may be classified under NAICS code 

522320 for financial transactions processing, 

reserve, and clearing house activities, which also 

includes more than 2,000 small firms. U.S. Census 

Bureau, American FactFinder Database, Estab and 

Firm Size: Summary Statistics by Revenue Size of 

Establishments for the United States: 2007, 

available at http://factfinder2.census.gov/bkmk/

table/1.0/en/ECN/2007_US/52SSSZ4//

naics∼522320. Still other service providers are 

likely to be considered in other NAICS codes 

corresponding to the service provider’s primary 

business activities. As noted above with respect to 

larger participants themselves, the frequency and 

duration of examinations that would be conducted 

at any particular service provider would depend on 

a variety of factors. However, it is implausible that 

in any given year the Bureau would conduct 

examinations of a substantial number of the more 

than 4,000 small firms in NAICS code 522220 and 

522320, or the small firm service providers that 

happen to be in any other NAICS code. Moreover, 

the impact of supervisory activities, including 

examinations, at such small firm service providers 

can be expected to be less, given the Bureau’s 

exercise of its discretion in supervision, than at the 

larger participants themselves. 

be minimal in relation to the overall 

activities of a larger participant.122

Hence, the Proposed Rule would not 

have a significant economic impact on 

a substantial number of small entities 

because the Proposed Rule would not 

impose any significant business conduct 

obligations on the defined class of larger 

participants and the cost of supervisory 

activities would be nominal in relation 

to the revenue of a larger participant 

whose annual revenue fell below the 

$38.5 million SBA size standard.123

Finally, section 1024(e) of the DoddFrank Act authorizes the Bureau to 

supervise service providers to nonbank 

covered persons encompassed by 

section 1024(a)(1), which includes 

larger participants. Because the 

Proposed Rule does not specifically 

address service providers, effects on 

service providers need not be discussed 

for purposes of this RFA analysis. Even 

were such effects relevant, the Bureau 

believes that it would be very unlikely 

that any supervisory activities with 

respect to the service providers to the 

approximately 38 potential larger 

participants of the proposed market for 

automobile financing would result in a 

significant economic impact on a 

substantial number of small entities.124

Accordingly, the undersigned certifies 

that the Proposed Rule would not have 

a significant economic impact on a 

substantial number of small entities. 

VIII. Paperwork Reduction Act 

The Bureau has determined that this 

Proposed Rule would not impose any 

new recordkeeping, reporting, or 

disclosure requirements on covered 

entities or members of the public that 

would constitute collections of 

information requiring approval under 

the Paperwork Reduction Act, 44 U.S.C. 

3501, et seq. 

List of Subjects in 12 CFR Part 1000 and 

12 CFR Part 1090 

Consumer protection, Credit. 

Authority and Issuance 

For the reasons set forth in the 

preamble, the Bureau proposes to add 

12 CFR part 1001 and proposes to 

amend 12 CFR part 1090, subpart B, to 

read as follows: 

PART 1001—FINANCIAL PRODUCTS OR 

SERVICES 

Sec. 

1001.1 Authority and purpose. 

1001.2 Definitions. 

■ 1. The authority citation for part 1001 

is to read: 

Authority: 12 U.S.C. 5481(15)(A)(xi); and 

12 U.S.C. 5512(b)(1). 

■ 2. Add part 1001 to Chapter X in Title 

12 of the Code of Federal Regulations to 

read as follows: 

PART 1001—FINANCIAL PRODUCTS 

OR SERVICES 

§ 1001.1 Authority and purpose. 

Under 12 U.S.C. 5481(15)(A)(xi), the 

Bureau is authorized to define certain 

financial products or services for 

purposes of title X of the Dodd-Frank 

Act, Public Law 111–203, 124 Stat. 1376 

(2010) (Title X) in addition to those 

defined in 12 U.S.C. 5481(15)(A)(i)–(x). 

The purpose of this part is to implement 

that authority. 

§ 1001.2 Definitions. 

Except as otherwise provided in Title 

X, in addition to the definitions set forth 

in 12 U.S.C. 5481(15)(A)(i)–(x), the term 

‘‘financial product or service’’ means, 

for purposes of Title X: 

(a) Extending or brokering leases of an 

automobile, as defined by 12 CFR 

1090.108(a), where the lease: 

(1) Qualifies as a full-payout lease and 

a net lease, as provided by 12 CFR 

23.3(a), and has an initial term of not 

less than 90 days, as provided by 12 

CFR 23.11; and 

(2) Is not a financial product or 

service under 12 U.S.C. 5481(15)(A)(ii). 

PART 1090—DEFINING LARGER 

PARTICIPANTS OF CERTAIN 

CONSUMER FINANCIAL PRODUCT 

AND SERVICE MARKETS 

■ 3. The authority citation for part 1090 

continues to read as follows: 

Authority: 12 U.S.C. 5514(a)(1)(B); 12 

U.S.C. 5514(a)(2); 12 U.S.C. 5514(b)(7)(A); 

and 12 U.S.C. 5512(b)(1). 

■ 4. Section 1090.101 is amended by 

revising the definition of ‘‘Nonbank 

covered person’’ to read as follows: 

§ 1090.101 Definitions. 

* * * * * 

Nonbank covered person means, 

except for persons described in 12 

U.S.C. 5515(a) and 5516(a): 

(1) Any person that engages in 

offering or providing a consumer 

financial product or service; and 

(2) Any affiliate of a person that 

engages in offering or providing a 

consumer financial product or service if 

such affiliate acts as a service provider 

to such person. 

* * * * * 

■ 5. Section 1090.104 is amended by 

revising paragraph (a)(iii)(D) of the 

definition ‘‘annual receipts’’ to read as 

follows: 

§ 1090.104 Consumer reporting market. 

(a) * * * 

(iii) * * * 

(D) The annual receipts of a formerly 

affiliated company are not included if 

the affiliation ceased before the 

applicable period of measurement as set 

forth in paragraph (ii) of this definition. 

The annual receipts of a nonbank 

covered person and its formerly 

affiliated company are aggregated for the 

entire period of measurement if the 

affiliation ceased during the applicable 

period of measurement as set forth in 

paragraph (ii) of this definition. 

* * * * * 

■ 6. Section 1090.105 is amended by 

revising paragraph (a)(iii)(D) of the 

definition ‘‘annual receipts’’ to read as 

follows: 

§ 1090.105 Consumer debt collection 

market. 

(a) * * * 

(iii) * * * 

(D) The annual receipts of a formerly 

affiliated company are not included if 

the affiliation ceased before the 

applicable period of measurement as set 

forth in paragraph (ii) of this definition. 

The annual receipts of a nonbank 


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Federal Register / Vol. 79, No. 195 / Wednesday, October 8, 2014 / Proposed Rules 60783 

covered person and its formerly 

affiliated company are aggregated for the 

entire period of measurement if the 

affiliation ceased during the applicable 

period of measurement as set forth in 

paragraph (ii) of this definition. 

* * * * * 

■ 7. Add § 1090.108 to subpart B to read 

as follows: 

§ 1090.108 Automobile financing market. 

(a) Market-related definitions. As used 

in this section: 

Aggregate annual originations means 

the sum of the number of annual 

originations of a nonbank covered 

person and the number of annual 

originations of each of the nonbank 

covered person’s affiliated companies, 

calculated as follows: 

(i) Annual Originations. 

(A) Annual originations means the 

sum of the following transactions for the 

preceding calendar year: 

(1) Credit granted for the purpose of 

purchasing an automobile; 

(2) Automobile leases; 

(3) Refinancings of obligations 

described in (1) above, and any 

subsequent refinancings thereof; and 

(4) Purchases or acquisitions of 

obligations described in (1) or (3) above 

or of automobile lease agreements. 

(B) The term annual originations does 

not include investments in asset-backed 

securities. 

(ii) Aggregating the annual 

originations of affiliated companies. 

The annual originations of a nonbank 

covered person must be aggregated with 

the annual originations of any person 

(other than an entity described in 

paragraph (c)) that was an affiliated 

company of the nonbank covered person 

at any time during the preceding 

calendar year. The annual originations 

of a nonbank covered person and its 

affiliated companies are aggregated for 

the entire preceding calendar year, even 

if the affiliation did not exist for the 

entire calendar year. 

Automobile means any self-propelled 

vehicle primarily used for personal, 

family, or household purposes for onroad transportation. The term does not 

include motor homes, recreational 

vehicles (RVs), golf carts, and motor 

scooters. 

Automobile financing means 

providing the transactions identified 

under the term ‘‘annual originations’’ as 

defined in this section. 

Automobile lease means a lease that is 

for the use of an automobile, as defined 

in this section, and that meets the 

requirements of 12 U.S.C. 

5481(15)(A)(ii) or 12 CFR 1001.2(a). 

Refinancing has the same meaning as 

in 12 CFR 1026.20(a), except that the 

nonbank covered person need not be the 

original creditor or a holder or servicer 

of the original obligation. 

(b) Test to define larger participants. 

Except as provided in paragraph (c), a 

nonbank covered person that engages in 

automobile financing is a larger 

participant of the automobile financing 

market if the person has at least 10,000 

aggregate annual originations. 

(c) Exclusion for dealers. The 

following entities do not qualify as 

larger participants under this section: 

(1) persons excluded from the 

authority of the Bureau by 12 U.S.C. 

5519; and 

(2) persons who meet the definition in 

12 U.S.C. 5519(f)(2); are identified in 12 

U.S.C. 5519(b)(2); and are 

predominantly engaged in the sale and 

servicing of motor vehicles, the leasing 

and servicing of motor vehicles, or both. 

Dated: September 16, 2014. 

Richard Cordray, 

Director, Bureau of Consumer Financial 

Protection. 

[FR Doc. 2014–23115 Filed 10–7–14; 8:45 am] 

BILLING CODE 4810–AM–P 

FEDERAL HOUSING FINANCE BOARD 

12 CFR Parts 931 and 933 

FEDERAL HOUSING FINANCE 

AGENCY 

12 CFR Part 1277 

RIN 2590–AA71 

Federal Home Loan Bank Capital Stock 

and Capital Plans 

AGENCY: Federal Housing Finance 

Board, Federal Housing Finance 

Agency. 

ACTION: Proposed rule. 

SUMMARY: The proposed rule would 

transfer existing parts 931 and 933 of 

the Federal Housing Finance Board 

(Finance Board) regulations, which 

address requirements for Federal Home 

Loan Bank (Bank) capital stock and 

capital plans, to new Part 1277 of the 

Federal Housing Finance Agency 

(FHFA) regulations. The proposed rule 

would not make any substantive 

changes to these requirements, but 

would delete certain provisions that 

applied only to the one-time conversion 

of Bank stock to the new capital 

structure required by the Gramm-LeachBliley Act (GLB Act). It would also 

make certain clarifying changes so that 

the rules would more precisely reflect 

long-standing practices and 

requirements with regard to transactions 

in Bank stock. Most significantly, the 

proposed rule would add appropriate 

references to ‘‘former members’’ to 

clarify when former Bank members can 

be required to maintain investment in 

Bank capital stock after withdrawal 

from the Bank. 

DATES: Comments must be received on 

or before December 8, 2014. 

ADDRESSES: You may submit your 

comments on the proposed rule, 

identified by regulatory information 

number (RIN) 2590–AA71 by any of the 

following methods: 

• Agency Web site: www.fhfa.gov/ 

open-for-comment-or-input. 

• Federal eRulemaking Portal: http:// 

www.regulations.gov. Follow the 

instructions for submitting comments. If 

you submit your comments to the 

Federal eRulemaking Portal, please also 

send it by email to FHFA at 

RegComments@FHFA.gov to ensure 

timely receipt by the agency. Please 

include ‘‘RIN 2590–AA71’’ in the 

subject line of the message. 

• Hand Delivery/Courier: The hand 

delivery address is: Alfred M. Pollard, 

General Counsel, Attention: Comments/ 

RIN 2590–AA71, Federal Housing 

Finance Agency, Constitution Center, 

(OGC) Eighth Floor, 400 Seventh Street 

SW., Washington, DC 20024. The 

package should be delivered to the 

Seventh Street entrance Guard Desk, 

First Floor, on business days between 9 

a.m. and 5 p.m. 

• U.S. Mail, United Parcel Service, 

Federal Express, or Other Mail Service: 

The mailing address for comments is: 

Alfred M. Pollard, General Counsel, 

Attention: Comments/RIN 2590–AA71, 

Federal Housing Finance Agency, 

Constitution Center, (OGC) Eighth Floor, 

400 Seventh Street SW., Washington, 

DC 20024. 

FOR FURTHER INFORMATION CONTACT: Julie 

Paller, Senior Financial Analyst, 

Julie.Paller@FHFA.gov, 202–649–3201 

(this is not a toll-free number), Division 

of Federal Home Loan Bank Regulation; 

or Thomas E. Joseph, Associate General 

Counsel, Thomas.Joseph@FHFA.gov, 

202–649–3076 (this is not a toll-free 

number), Office of General Counsel 

(OGC), Federal Housing Finance 

Agency, Constitution Center, 400 

Seventh Street SW., Washington, DC 

20024. The telephone number for the 

Telecommunications Device for the 

Hearing Impaired is 800–877–8339. 

SUPPLEMENTARY INFORMATION: 

I. Background 

A. Comments 

Section 553 of the Administrative 

Procedure Act generally requires an 


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