Indirect Auto Lending at the Crossroads
Strategic implications of the CFPB’s guidance on indirect auto lending and Equal Credit Opportunity Act compliance
While auto lending remained largely outside the purview of many new regulations issued in response to the financial turmoil that occurred in the banking sector, auto finance may be attracting more regulatory attention as auto finance origination volumes rise amid declining home-equity loan volumes, a traditional alternative to auto loans for many borrowers. The auto finance landscape may significantly change due to the recent release of the Consumer Financial Protection Bureau’s (CFPB’s) bulletin signaling its intent to become more involved in auto lending.
The mortgage industry’s adjustment to regulation provides an object lesson for auto lenders regardless of the strategy chosen, efficiently and effectively assimilating regulatory change in a proactive versus reactive manner could potentially provide a powerful competitive advantage. Doing so may allow the lender to focus on serving its market faster, rather than focusing on continual cycles of internal change management.
This paper looks at the CFPB’s position on indirect auto lending and suggests some strategic alternatives such as enhancing nonreserve products as well as reserve-based products. It also looks at the potential operational impacts and implications, offering suggestions on next steps.
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