Auto Finance Examination Procedures Cf.gov 8

2y ago
29 Views
3 Downloads
322.91 KB
45 Pages
Last View : 2m ago
Last Download : 2m ago
Upload by : Hayden Brunner
Transcription

CFPBExamination ProceduresAuto FinanceAutomobile Finance Examination Procedures[Click&type]Exam Date:After completing the examination risk assessment[Click&type]Prepared By:and scoping, examiners should use these[Click&type]Reviewer:procedures to conduct an automobile finance[Click&type]Docket #:examination. Because the Consumer Financial[Click&type]Entity Name:[Click&type]Event No.:Protection Bureau (CFPB or Bureau) expectsregulated entities under its supervision andenforcement authority to have an effective compliance management system adapted to itsbusiness strategy and operations, examiners should also use the Compliance ManagementReview (CMR) procedures to review and test components of the supervised entity’s compliancemanagement system.1These procedures are organized into seven modules, which include guidance for examining allaspects of auto finance. As determined by the examination scope, and in conjunction with theCMR procedures, each examination will include parts of one or more of the following modules.Module 7 – Examiner Conclusions and Wrap-up is a required module and must be completed forall examinations.Module 1Company Business ModelModule 2Advertising and MarketingModule 3Application and OriginationModule 4Payment Processing and Account MaintenanceModule 5Collections, Debt Restructuring, Repossession, and Accounts in BankruptcyModule 6Credit Reporting, Information Sharing, and PrivacyModule 7Examiner Conclusions and Wrap-up1A supervised entity must develop and maintain an effective compliance management system that is integrated into the overallframework for product design, delivery, and administration of the entire product and service lifecycle. Ultimately, complianceshould be part of the day-to-day responsibilities of management and the employees of a supervised entity; issues should be selfidentified; and corrective actions should be initiated by the entity. Supervised entities are also expected to manage relationshipswith service providers to ensure that these providers effectively manage compliance with Federal consumer financial lawsapplicable to the product or service being provided. See CFPB Supervision and s/; see also CFPB ComplianceBulletin and Policy Guidance; 2016-02, Service Providers, August 2019Auto Finance 1

CFPBExamination ProceduresAuto FinanceExamination Objectives1. To assess the supervised entity’s compliance management system, including internalcontrols, policies, and procedures for preventing violations of Federal consumer financiallaw.2. To identify acts or practices that materially increase the risk of violations of Federalconsumer financial law.3. To gather facts that help determine whether a supervised entity engages in acts or practicesthat are likely to violate Federal consumer financial law.4. To determine, in consultation with headquarters, whether a violation of a Federal consumerfinancial law has occurred, and whether further supervisory or enforcement action isappropriate.BackgroundSection 1024 of the Dodd-Frank Act (12 U.S.C. 5514(a)(1)(B)) gave the CFPB supervisoryauthority over “larger participants” of certain markets for consumer financial products orservices, as the CFPB defines by rule.2 Under this authority, the Bureau issued its final ruledefining larger participants of the automobile financing market, 12 CFR 1090.108, on June 30,2015.3 The rule became effective on August 31, 2015.4Per the rule, a nonbank covered person that engages in automobile financing is generally a largerparticipant if such person has at least 10,000 aggregate annual originations,5 which the Bureaudefined to include the following transactions:2 Credit granted for the purpose of purchasing an automobile; Automobile leases;Pub. L. No. 111-203 (2010).3Defining Larger Participants of the Automobile Financing Market and Defining Certain Automobile Leasing Activity as aFinancial Product or Service, 80 Fed. Reg. 37495 (June 30, 2015).4Id.512 CFR 1090.108(b).CFPBAugust 2019Auto Finance 2

CFPBExamination ProceduresAuto Finance Refinancings of credit granted for the purpose of purchasing an automobile (and anysubsequent refinancings thereof) that are secured by an automobile; and Purchases or acquisitions of any of the foregoing obligations.6The rule also clarified that auto dealers, including Buy-Here, Pay-Here (BHPH) dealers, are notlarger participants under the rule.7Sources of Auto FinancingConsumers often purchase or obtain a vehicle by acquiring credit or entering into a leasearrangement. When acquiring credit, consumers can go through an indirect or a direct channel.Indirect Lending ChannelWith indirect lending, or dealer arranged financing, the dealer, rather than the consumer,typically selects the lender that will provide financing. Upon completion of the vehicle selectionprocess, the dealer collects the consumer’s credit application information and forwards thatinformation to one or more lenders using a standardized platform, such as DealerTrack,RouteOne, or Credit Union Direct Lending (CUDL).When selecting a lender to approve the loan, the dealer may have incentives to select a particularlender over another. For example, a franchised dealer, a dealer that sells vehicles for certain automanufacturers, may have incentives, such as promotional discounts or limited-time financingoffers, to use the manufacturer’s subsidiary finance company – typically called a captive financecompany – over another lender. Regardless of which lender the dealer selects, the underwritingand approval process is typically the same. That is, after evaluating the applicant, the lender willprovide the dealer with its credit decision, including purchase eligibility criteria and otherstipulations, such as a risk-based “buy rate.”8After receiving a credit decision, the dealer will then finalize a retail installment sales contractwith the consumer and subsequently sell that contract to the lender that provided the dealer with612 CFR § 1090.108(a)(i)(A).7Id. § 1090.108(c); Section 1029 of the Dodd-Frank Act, 12 USC 5519, limits the Bureau’s authority over auto dealers. The finallarger participant rule references this exclusion. See 12 CFR 1090.108(c)(1). The larger participant rule also excludes motorvehicle dealers that are predominantly engaged in the sale (and/or leasing) and servicing of motor vehicles and operate a line ofbusiness that involves the extension of retail credit or retail leases directly to consumers without routinely assigning them tounaffiliated third party finance or leasing sources. See 12 CFR 1090.108(c)(2) (citing 12 USC 5519(b)(2) and (f)(2)); see also 80Fed. Reg. at 37515-16 (explaining the exclusion for BHPH dealers in paragraph (c)(2)).8The “buy rate” establishes the minimum interest rate at which the finance company is willing to purchase the retail installmentsales contract executed between the consumer and the dealer for the purchase of the vehicle.CFPBAugust 2019Auto Finance 3

CFPBExamination ProceduresAuto Financean approved credit decision. The lender will then own and service the loan, or transfer thoserights and responsibilities to another company.Direct Lending ChannelIn the direct lending context, consumers directly apply for financing with a finance company,bank, or credit union of their choosing. After receiving an approval, the consumer will use theloan proceeds to directly purchase a vehicle from a seller.LeasingA lease agreement, between a lessor and lessee, sets forth terms that allow the lessee to use thevehicle for a set number of months, typically 12 to 48 months, while making a payment to thelessor each month. Leasing a vehicle is similar to obtaining credit in that both require anapplication, decision, and ongoing contractual obligation. For example, like a consumer seekingcredit to purchase a vehicle, a consumer seeking to lease a vehicle must provide basic financialinformation such as income and credit history. Moreover, by signing the lease agreement, theconsumer undertakes a major financial obligation in the form of a commitment to make a streamof payments over a specified period. The consumer can typically purchase the vehicle at the endof the lease term for a pre-determined amount, which is generally based on the residual value ofthe vehicle.9Buy-Here, Pay-HereWhile most Buy-Here, Pay-Here (BHPH) dealers are independently owned entities that serve asthe primary lender and servicer, some larger BHPH dealers sell or assign their contracts to anaffiliated BHPH finance company once the contract has been consummated with the consumer.Ancillary Products and ServicesIn addition to the actual vehicle, auto dealers and finance companies sometimes offer ancillary,or add-on, products and services at the time of vehicle purchase. For example: Guaranteed Auto Protection or Guaranteed Asset Protection (GAP) is a product designed tocover the difference, or “gap,” between the amount owed by the consumer on the auto loanand the amount received from the auto insurer in the event the vehicle is stolen, damaged, ortotaled.Generally, there are two types of GAP products in the market. A “GAP waiver” is acontractual agreement between the consumer and the finance company to cancel the debt inthe event the vehicle is stolen, damaged, or totaled. The agreement typically appears in the9The residual value is the projected market value of the vehicle at the end of the lease, which is used in calculating the amountthe consumer would have to pay to purchase the vehicle at the end of the lease term.CFPBAugust 2019Auto Finance 4

CFPBExamination ProceduresAuto Financeretail installment sales contract or as an addendum to the sales contract. Most lease contractsoffered by a captive finance company will typically include a GAP waiver.A “GAP waiver insurance” is an agreement between a consumer and an insurer. With thisproduct, the consumer agrees to pay the insurer premiums for coverage and in return, theinsurer agrees to pay the consumer the “gap” amount in the event of a total loss. Uponreceiving this payout, the consumer will typically use it to pay off the remaining balance onthe auto loan. An Extended Warranty is a product that covers the cost of some repairs either in addition toor after the manufacturer’s warranty ends. These products typically exclude routinemaintenance, such as oil changes and tire replacements. Credit insurance is a product in which the provider agrees to make the consumer’s autopayments upon the occurrence of certain situations, such as death or disability. There are fourmain types of credit insurance:o Credit life insurance – pays off all or some of the outstanding balance on the loan in theevent the consumer dies;o Credit disability insurance – makes payments on the loan if the consumer becomes ill orinjured and, as a result, cannot work;o Involuntary unemployment insurance – makes payments on the loan if the consumerbecomes unemployed; ando Credit property insurance – protects the car secured by the loan from events such as theft,accident, or natural disasters. This differs from property insurance.Applicable Laws/RegulationsEntities offering auto finance products or services must comply with Federal consumer financiallaws to the extent that the law applies to the particular entity and its activities: The Truth in Lending Act (TILA) and its implementing regulation, Regulation Z, requirecreditors to disclose information relating to the cost of loans, comply with advertisingrequirements, and process credit balances. The Consumer Leasing Act (CLA) and its implementing regulation, Regulation M, requirelessors to provide specific disclosures prior to consummation of a consumer lease andinclude certain disclosures in advertisements that contain specified triggering terms. The Electronic Fund Transfer Act (EFTA) and its implementing regulation, Regulation E,protect consumers engaging in electronic fund transfers. Among other things, Regulation Eprohibits persons from requiring, as a condition of loan approval, a customer’s authorizationfor loan repayment through a recurring electronic funds transfer (EFT) except in limitedcircumstances.CFPBAugust 2019Auto Finance 5

CFPBExamination ProceduresAuto Finance The Fair Debt Collection Practices Act (FDCPA) governs collection activities conducted bythird party collection agencies, as well as servicer collection activities if the servicer acquiredthe loan when it was already in default. The Fair Credit Reporting Act (FCRA) and its implementing regulation, Regulation V,require that furnishers of information to consumer reporting agencies ensure the accuracy ofdata they place in the consumer reporting system. Additionally, the FCRA prohibits the useof consumer reports for impermissible purposes, and it requires users of consumer reports toprovide certain disclosures to consumers. The FCRA also limits certain information sharingbetween affiliated companies. Examiners should note that the FCRA’s implementingregulations may differ for depository and non-depository institutions. The Gramm-Leach-Bliley Act (GLBA) and its implementing regulation, Regulation P,require entities to provide privacy notices and limit information sharing in particular ways. The Equal Credit Opportunity Act (ECOA) and its implementing regulation, Regulation B,set forth requirements for accepting applications and providing notice of any adverse action,and prohibit discrimination against any borrower with respect to any aspect of a credittransaction:o On the basis of race, color, religion, national origin, sex or marital status, or age(provided the applicant has the capacity to contract);o Because all or part of the applicant’s income derives from any public assistance program;oro Because the applicant has in good faith exercised any right under the Consumer CreditProtection Act.10If examiners identify concerns related to ECOA or Regulation B, they should consult withthe Fair Lending team in the Office of Supervision Policy, as those issues are beyond thescope of these procedures. An examination of whether an entity’s auto finance activitiesinvolve discrimination or other practices in violation of the ECOA will rely on proceduresoutlined in the CFPB’s ECOA Examination Procedures.10The Consumer Credit Protection Act, 15 USC 1601 et seq., is the collection of federal statutes that protects consumers whenapplying for or receiving credit. The Act includes statutes that have dispute rights for consumers, such as the Fair CreditReporting Act. The ECOA prohibits discriminating against an applicant who has exercised a dispute right pursuant to one of thestatutes outlined in the Act.CFPBAugust 2019Auto Finance 6

CFPBExamination ProceduresAuto FinanceTo carry out the Examination Objectives, the examination process may also include assessingother risks to consumers. Collecting information about risks to consumers, whether or not thereare specific legal guidelines addressing such risks, can help inform the CFPB’s policymaking.Moreover, these risks may include potentially unfair, deceptive, or abusive acts or practices(UDAAPs) with respect to the entity’s interactions with consumers.11 The CFPB uses thefollowing standards when assessing UDAAPs:o A representation, omission, act, or practice is deceptive when: The representation, omission, act, or practice misleads or is likely to mislead theconsumer; The consumer’s interpretation of the representation, omission, act, or practice isreasonable under the circumstances; and The misleading representation, omission, act, or practice is material.o An act or practice is unfair when: It causes or is likely to cause substantial injury to consumers; The injury is not reasonably avoidable by consumers; and The injury is not outweighed by countervailing benefits to consumers or tocompetition.o An abusive act or practice:11 Materially interferes with the ability of a consumer to understand a term or conditionof a consumer financial product or service; or Takes unreasonable advantage of – A lack of understanding on the part of the consumer of the material risks, costs, orconditions of the product or service; The inability of the consumer to protect the consumer’s interests in selecting orusing a consumer financial product or service; or The reasonable reliance by the consumer on a covered person to act in theinterests of the consumer.Section 1036 of the Dodd-Frank Act, 12 USC 5536.CFPBAugust 2019Auto Finance 7

CFPBExamination ProceduresAuto FinanceRefer to the examination procedures regarding UDAAPs for more information about the legalstandards and the CFPB’s approach to examining for UDAAPs.The particular facts in a case are crucial to a determination of UDAAPs. As set forth in theExamination Objectives section, examiners should follow the CFPB internal consultationrequirements to determine whether the applicable legal standards have been met before aviolation of any Federal consumer financial law is cited, including a UDAAP violation.General ConsiderationsCompleting the examination modules, as applicable, will allow examiners to develop a thoroughunderstanding of a regulated entity’s practices and operations. To complete the modules,examiners should obtain and review, as applicable, each entity’s: Organizational charts and process flowcharts; Board minutes, annual reports, or the equivalent, to the extent available; Relevant management reporting; Policies and procedures; Compensation and employee incentive structures and policies; Rate sheets; Fee sheets; Loan/lease applications; Loan/lease underwriting guidelines; Loan/lease account documentation, notes, disclosures, and all other contents of underwritingand closing files; Operating checklists, worksheets, and review documents; Relevant computer program and system details; Dealer agreements, due diligence and monitoring procedures, and origination (lending orleasing) procedures; Servicing related policies and procedures, such as those related to payment posting andpayment allocation, and repossessions; Service provider due diligence and monitoring procedures, and service provider contracts; Compliance monitoring and/or audit reports;CFPBAugust 2019Auto Finance 8

CFPBExamination ProceduresAuto Finance Management’s responses to compliance monitoring and/or audit findings; Debt collection practices; Repossession reports; Training programs and materials; Advertisements; and Complaints.Examiners should request that the entity provide a “walkthrough” of its origination and servicingprocesses using one or two specific consumer accounts as an example. Examiners should obtainaccess to, or a walkthrough of, the entity’s online services such as its origination interface and onlineapplications, and servicing interface and online payments.Depending on the scope of the examination, examiners should perform transaction testing usingapproved sampling procedures, which may require use of a judgmental or statistical sample.Examiners should also conduct interviews with management and staff to determine whether theyunderstand and consistently follow the policies, procedures, and regulatory requirementsapplicable to automobile financing; manage change appropriately; and implement effectivecontrols. Examiners should also consider observing live or recorded customer interactions ifconsumer complaints or transaction testing indicate potential concerns.CFPBAugust 2019Auto Finance 9

CFPBExamination ProceduresAuto FinanceModule 1 – Company Business ModelExaminers should review the entity’s portfolio and interview management to understand itsbusiness model.1. Determine the type of products and services the entity offers and its strategy.[Click&type]2. Determine the product volume, mix, trends, and concentrations.[Click&type]3. Revie

Examination Procedures Auto Finance CFPB August 2019 Auto Finance 1 Automobile Finance Examination Procedures After completing the examination risk assessment . credit to purchase a vehicle, a consumer seeking to lease a vehicle must provide basic financial information such as income and credit history. Moreover, by signing the lease .

Related Documents:

auto auto auto. frozen drinks smoothies puree med high pulse low / dough. auto auto auto. frozen drinks smoothies puree med high pulse low / dough. auto auto auto. frozen drinks smoothies puree med high pulse low / dough. auto auto auto. please keep these important safeguards in mind when using the . appliance: mportant: make sure that the .

of Managerial Finance page 2 Introduction to Managerial Finance 1 Starbucks—A Taste for Growth page 3 1.1 Finance and Business What Is Finance? 4 Major Areas and Opportunities in Finance 4 Legal Forms of Business Organization 5 Why Study Managerial Finance? Review Questions 9 1.2 The Managerial Finance Function 9 Organization of the Finance

The roles of the finance function in organisations 4. The role of ethics in the role of the finance function Ethics is the system of moral principles that examines the concept of right and wrong. Ethics underpins an organisation’s sustained value creation. The roles that the finance function performs should be carried out in an .File Size: 888KBPage Count: 10Explore furtherRole of the Finance Function in the Financial Management .www.managementstudyguide.c Roles and Responsibilities of a Finance Department in a .www.pharmapproach.comRoles and Responsibilities of a Finance Department .www.smythecpa.comTop 10 – Functions of Business Finance in an Organizationwikifinancepedia.com23 Functions and Duties of Accounting and Finance .accountantnextdoor.comRecommended to you b

MO 77 Motors: Rock Hill, SC 7th Avenue Auto Salvage: Fargo, ND 81 Auto Parts & Recycling : Salem, VA 82 Auto Wrecking: Brookfield, OH #9 Truck & Auto Parts (No US Shipping) : Tottenham, ON 97 Auto Wrecking Shull's Towing: Brewster , WA 98 Auto Recyclers: Brooksville, FL 99 Auto Dismantler: Stockton, CA A & A Auto & Truck LLC:

Descriptif des cours Course Outlines 10 Catalogue des cours/ Course Catalog 2017-2018 FIN: Finance/Finance A : Actuariat/Actuarial, Insurance E : Finance d’entreprise/Corporate Finance The course liste tables and the course outlines G : Finance générale/General Finance M : Finance de marché/Market Finance S : Synthèse/Synthesis IDS: Systèmes d’Information, Sciences de la Décision et .

Introduction to Behavioral Finance CHAPTER1 What Is Behavioral Finance? Behavioral Finance: The Big Picture Standard Finance versus Behavioral Finance The Role of Behavioral Finance with Private Clients How Practical Application of Behavioral Finance Can Create a Successful Advisory Rel

10 Catalogue des cours/Course Catalog 2021-2022 FIN: Finance/Finance E : Finance d'entreprise/Corporate Finance G : Finance générale/General Finance M : Finance de marché/Market Finance S : Synthèse/Synthesis IDS: Systèmes d'Information, Sciences de la Décision et Statistiques/ Information Systems, Decision Sciences and Statistics

American Revolution This question is based on the accompanying document (1-6). The question is designed to test your ability to work with historical documents. Some of the documents have been edited for the purposes of the question. As you analyze the documents, take into account the source of each document and any point of view that may be presented in the document. HISTORICAL CONTEXT: passed .