CFPB Launches Auto Finance Data Pilot in Volatile Market

In November 2022, the Consumer Financial Protection Bureau (CFPB) announced that it would launch an auto finance data pilot program to collect and analyze more industry data. After meeting with various stakeholders over the ensuing months, the office released a statement detailing the launch of the program on February 23, 2023.

The announcement comes at a critical time for auto finance. A rapid drop in the price of used cars after all-time highs has left millions of people underwater on their car loans. Continued increases in the federal funds rate mean that auto loan interest rates continue to rise. These issues and others are part of a rapidly evolving financial market that is causing concern among regulators.

Automoblog spoke to CFPB officials at an information call in March to learn more about the program, the reasons for launching it, and its goals. This is what we learned.

What is the CFPB Auto Finance Data Pilot?

In short, the CFPB Auto Loan Data Pilot Program is a new program designed to collect more detailed data on the auto finance industry. The show was first announced in November 2022.

an infographic showing what kind of information the cfpb auto loan pilot program will collect represented as four red icons

To collect that information, the CFPB is working directly with nine consumer auto lenders. According to a CFPB press release, these nine lenders represent a cross-section of the auto finance market, so their data should provide a comprehensive picture of the industry.

The pilot addresses a number of problems with auto loan data

One of the main reasons for launching the pilot program, according to our source and the CFPB press release, is the current lack of data on auto loans. With an estimated $1.5 trillion in outstanding credit debt in the US, auto loans are the third largest category of consumer credit after mortgages and student loans.

But despite the size of the market, the CFPB says there’s a big gap between the amount of information they have on mortgages and student loans and what they have on car loans. Financial analysts and regulators have long had detailed information about home loans, and the federal government administers student loans, so it has direct access to that data. By comparison, information on auto loans is relatively sparse.

In its press release, the CFPB identified several problems with the current state of financial data for the auto industry. The group broke down the three areas that stakeholders indicated could benefit from additional data visibility: data granularity, consistency, and quality; loan performance trends; and loan-related issues, such as the use of certain technologies.

Differences in the lending channel

One of the key problems with today’s auto loan data is a lack of segmentation. Auto loan data is typically not broken down by whether a borrower finances a purchase through direct or indirect loans.

In a direct loan model, the borrower works with a lender to secure the funds needed to make a purchase or refinance a loan. Indirect loans refer to when a car dealer finds financing for the borrower.

The differences between these lending channels in terms of loan terms, interest rates, and other details can be substantial. As a result, the lack of differentiation in data collection makes it difficult to gain a nuanced understanding of the lending market with respect to these channels. With the data pilot, the CFPB can analyze these channels separately.

Data granularity, consistency and quality

Our source at the CFPB said the general lack of granularity around loan data is another problem they hope to solve with the pilot. Loans are individualized. Lenders base rates and terms on borrowers’ credit scores and other factors. However, these granular details are not always accounted for in auto finance data, clouding the results.

The lack of consistency and variable quality of that information is also an obstacle for analysts and regulators. According to the CFPB, this is due to how auto loan data has been collected and distributed thus far.

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Much of the data on auto loans is proprietary, or owned by a private party. This creates several problems for analysts and regulators. The lack of a centralized data set means that just collecting auto loan data is more time consuming and difficult than in other industries.

But it also means that there may be variations in the terms and definitions that parties use in their data collection and analysis. Different providers may, for example, have different score ranges for credit categories. One provider may define the “primary” category in the range 660 to 719, while another may define that category in the range 640 to 700. As a result, one provider’s data set would be incompatible with the other without controlling This differences.

By creating a centralized data set, the pilot program can improve the quality and consistency of available auto finance data.

Loan Performance Trends

With auto loan default rates approaching all-time highs, loan performance is a key issue for the CFPB. The lack of reliable information on foreclosures was a key point in the office’s February press release. This includes information such as how long a loan is due before a car is repossessed, or how long a borrower has paid off a loan before their car is repossessed.

But the press release also indicates an interest in more specific information about which borrowers face higher default and recovery rates. He mentions the need for more data on the correlations between delinquency rates and demographic factors, such as credit score, geography, and income, as well as how the recovery affects borrowers and lenders.

Loan Issues

The scope of the pilot extends beyond the auto loan data itself. Adjacent issues, such as the use of GPS tracking and jump start devices by lenders, are also an area of ​​interest to the CFPB.

Through this research, the office could learn more about how and how often lenders and dealers use these technologies. It could also provide information about the impact they have on liability, privacy, and security issues.

What the CFPB Auto Finance Data Pilot Means for You

The new data pilot is still in its infancy. CFPB officials are just beginning to collect what is sure to be a wealth of data on auto finances. And even when that data is collected, it may take some time before the general public has access to it.

Automoblog was told that the pilot’s findings will not be publicly available initially. However, the CFPB may publish summary information on its key findings after conducting its analysis.

The collection and centralization of higher quality, more consistent and more granular financial data will provide valuable insight into the third largest credit market in the country. In the future, that insight could eventually help the CFPB and others develop regulations to help protect borrowers from predatory lending practices and other dangers associated with auto loans.

In the opening paragraph of its February 23 press release, the CFPB highlighted the disproportionate impact of the recent spike in auto loan delinquencies and the affordability crisis on people with lower incomes and credit scores.

“Recent data shows an increase in auto loan delinquencies, particularly for low-income consumers and those with high-risk credit scores,” he says. “Some consumers may even be locked out of the current market.”

The auto finance data pilot could help the CFPB better understand these trends. Eventually, that data can help you improve them.

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