Auto loans have been growing at a surprisingly fast rate, taking the entire industry by storm. 2014 broke records, and 2015 appears to be on track to equal or even surpass it. With all this demand, unfortunately, unethical companies have been trying to horn in on the industry; fortunately, the government is putting a stop to it.
The Consumer Finance Protection Bureau, the government’s financial protection agency, recently proposed rules that would extend its supervision to any non-bank financial lender issuing more than 10,000 auto loans in a given year. The rules break down to, essentially, being honest.
For example, non-bank lenders will be required to fully disclose terms, and will have their marketing materials examined to see if consumers might find them deceptive or otherwise get the wrong impression from materials. Also under scrutiny: The data these lenders send to credit bureaus, debt collection practices, and whether or not lenders are following non-discrimination laws in their lending.
If much of this sounds like common sense, that’s because it is. And, in fact, the vast majority of non-bank financial companies are not only already attempting to abide by these guidelines, they’re welcoming them. The strongest reaction from the industry was simply to ask for a few relatively minor revisions to the law; in truth, most of the industry knows that treating their customers fairly is the only way to get ahead in a competitive market. Still, these rules are good news for consumers, especially those concerned about borrowing from nonbank lenders.
The best benefit, by far, is that alternative lenders are being treated the same, and being held to the same standards, as banks have been held to for years. One of the fundamental concerns of many consumers is a perception of a “Wild West” mentality among nonbank lenders, that a growth industry is drawing unethical companies and lenders that simply don’t know what they were doing. Some consumers simply aren’t comfortable borrowing from somebody who isn’t as tightly regulated. New government regulation is going to allow consumers to borrow with confidence, widening the range of lenders consumers borrow from.
It’s also important because that trust opens the door to more competition. As consumers can borrow from banks and have more trust in alternative lenders, the broader range of quotes they’ll receive will increase competition, driving down interest rates and terms, lowering monthly payments, and making auto loans better for everyone.
This works both ways, as well. Alternative lenders have been fighting for years to be seen with the same legitimacy as banking institutions, and part of that has been accepting more government oversight and regulation. To many in the alternative lending sector, this is actually a victory; they’re being seen as serious, and worthy of respect.
What consumers should take away from this is that alternative lenders are a source of loans they should examine closer. The more lenders you get a quote from, the better the loan you’ll ultimately find for your car. And better loans are better for everyone.