Understanding Auto Finance Rules and Regulations

Auto finance rules and regulations have seen a few significant changes in the last several years, including what they focus on, and how they are being enforced. Here’s what you need to know:

• Interest rates have risen significantly in the last three years, although they are currently experiencing a mild decline:
  Data via Statista

• Federal and state laws are taking increasing aim at capping interest rates for vehicle loans, adjusting thresholds for inflation, and increasing data transparency for borrowers and lenders.
• Enforcement has seen a shift from federal agencies (CFPB, FTC, & FDIC) to state-level regulators since Q1 2025. These larger agencies still have a role to play in enforcing auto rules and regulations, but these roles are notably smaller than they were last year.

To remain current and compliant, lenders should utilize solutions that make auto finance rules and regulations easier to follow.

Maintaining Compliance With Auto Finance Rules and Regulations

Many lenders are turning to technology to help them maintain regulatory compliance. While digital technology has made its way into nearly every industry, its capabilities offer significant benefits for both lenders and their customers. Today, it’s crucial that lenders use technology to analyze data to ensure that they remain compliant with any new auto finance rules and regulations.

Despite changes in the last year, auto finance rules and regulations in the United States still come primarily from federal or state authorities. Those at the federal level are the basis for legal authority throughout the country. This means that rules and regulations for leases and loans at the state level must be at least as stringent, or more so, than those at the federal level.

Ex. A federal regulation limits interest rates on an auto loan for a subprime borrower at the federal level. States cannot set anything above this rate, but a state statute could set a rate below this federal rate.

Rules and regulations aren’t laws themselves but rather directives that explain how to implement these laws. Regulations are more formal than rules, though they both prescribe exactly how auto lenders must conduct themselves, along with actions agencies tasked with enforcement can take if they don’t. Though rules are binding, they also describe how lenders should conduct themselves during the entirety of the leasing or lending process. Essentially, agencies use rules in the application, enforcement, implementation, and interpretation of laws or court decisions.

Who Makes and Enforces Auto Finance Rules and Regulations?

In the United States, legislation is written by a legislative body, whereas rules and regulations are the purviews of the executive branch, which enforces legislation. For a lender involved in auto finance, rules and regulations place limits on how they can go about providing their customers with leases or loans. In practice, this makes national agencies like the CFPB, FTC, and FDIC, along with state regulatory agencies, the enforcers of the laws that legislative bodies like the U.S. Congress or state legislatures pass.

Federal agencies who make and enforce auto finance rules and regulations include:

Federal Agencies in Charge of Auto Finance Rules and Regulations

Agency	Focus Areas	Est.
Consumer Financial Protection Bureau (CFPB)	Auto lending discrimination, overdraft and junk fees, medical debt reporting, nonbank supervision (e.g., fintech, BNPL)	2010
Federal Trade Commission (FTC)	Deceptive dealer practices, add-on product scams, TILA/CLA compliance	1914
Federal Deposit Insurance Corporation (FDIC)	Bank compliance with Fair Lending Act and UDAP, review of indirect auto lending & pricing disparities, guidance on deposit account fees and consumer complaints	1933

The following sections detail these agencies in further detail, discussing how each operates in relation to auto finance rules and regulations. For a discussion on how these roles have changed in the last year, consult the “Enforcement Focus in 2025” section below.

CFPB

The CFPB starts with research to guide its rulemaking process while also listening to the public through various advisory bodies, hearings, roundtable discussions, and business review panels.

After assessing the costs and benefits of proposed auto finance rules and regulations, the agency usually publishes these rules before they go into effect to give stakeholders the opportunity to comment on possible effects.

The CFPB also helps those affected comprehend and comply with rules and regulations once they’re in place by providing resources and other support.

FTC

When it comes to auto finance, rules and regulations enforced by the FTC focus on those which do the greatest harm to consumers. They investigate claims concerning unfair or deceptive actions or procedures that affect commerce, as well as practices that promote unfair competition.

They seek to prevent these in order to protect consumers and competition in the auto financing market. Rules and regulations are enforced by the agency through injunctions and restitution, though sometimes civil penalties are also incurred against lenders.

The agency seeks to prevent deceptive and unfair lending practices in the auto finance industry by uncovering and preventing fraud. It administers over 70 laws, including:

• Fair Credit Reporting Act
• Federal Trade Commission Act
• Identity Theft Act

The FTC additionally publishes reports and makes recommendations to Congress, regularly reviewing rules and guidelines to ensure they’re effective and not too burdensome, eliminating and modifying rules to keep them current with the constantly changing auto finance markets.

FDIC

The Federal Deposit Insurance Act governs FDIC rules and regulations regarding auto finance. The agency oversees banks and other financial institutions that it insures through this act, providing them with guidance about how to comply with the relevant laws for auto finance.

Rules and regulations regarding the auto financing industry seek to protect consumers while ensuring the lenders with whom they do business are sound.

As the primary regulator of banks at the federal level, they examine whether lenders comply with consumer protection laws like:

• Truth in Lending Act
• Fair Credit Billing Act
• Fair Credit Reporting Act
• Fair Debt Collection Practices Act

The agency also investigates complaints at the institutions it supervises, helping to facilitate the resolution of disputes between lenders and borrowers when necessary.

State Regulations

As federal regulating agencies have retreated in recent years, state regulators have begun to oversee financial institutions involved in auto finance. Rules and regulations presented by a coalition of attorneys general in over a dozen states and the District of Columbia seek to fill the void left by federal regulators. These have included both affirmations of intent to oversee auto lenders, as well as identifying new federal policies that could harm auto leasing or lending business in certain states.

State regulators have played an increasingly important role in enforcing auto finance rules and regulations, as discussed in the section below.

Key Auto Finance Rules and Regulations

Before implementing measures to maintain compliance, lenders should engage legal counsel in order to understand the key federal and state laws that cover auto finance. Rules and regulations concerning these laws standardizing vehicle leasing and lending practices are meant to protect consumers, but scrupulous lenders benefit from these as well, and it’s essential that lenders know which regulations affect their business. By ensuring all decisions concerning vehicular leases or loans are made fairly, lenders protect themselves from civil lawsuits for unfair business practices.

Key auto finance rules and regulations at the federal level include:

Act	What it Does	Recent Changes (2023-2025)	Enforced By
Consumer Leasing Act	Requires lenders to clearly disclose lease terms for loans exceeding four months	2025 increase in the exemption threshold to $71,900	Federal Reserve, FTC, CFPB
Credit Practices Rule	Prohibits abusive terms in consumer credit (confessions of judgment, wage assignments) Mandates cosigner disclosures	2025 withdrawal of proposed rule extending Credit Practices Rule to banks/financial inst.	FTC
Equal Credit Opportunity Act	Prohibits discrimination in credit transactions on the basis of protected characteristics	2023 rule requiring lender reporting data on SBA loan applications	CFPB, DOJ, FTC
Fair Credit Reporting Act	Regulates access to consumer credit reports Establishes consumer rights to accuracy, access, and dispute resolution	2025 ban on medical bills/information being used in credit decisions	CFPB, FTC
Risk-Based Pricing Rule	Requires lenders to notify consumers if their credit report causes less favorable terms	N/A	CFPB, FTC
Servicemembers Civil Relief Act	Protects active-military against auto repossessions/foreclosures Caps interest rates at 6% Removes termination penalties when deployed for over 180 days	2023 amendment to allow service members to use professional licenses/certificates when relocating. Not specifically relevant to auto loans	DOJ, CFPB
Truth in Lending Act	Standardizes cost-of-credit information disclosures for more accurate comparison	2025 increase in the exemption threshold to $71,900	CFPB

Given the perception that federal courts have limited federal agencies tasked with overseeing auto finance, rules and regulations passed by state regulators are likely to become increasingly important to lenders in the near future. State legislatures are particularly looking at legislation that protects consumer data and deals with guaranteed asset protection (GAP) waivers.

Keeping Up With New Auto Finance Rules and Regulations

Several states passed new legislation throughout the 2020s, including California, Illinois, New Mexico and New York. It’s likely more states will follow this trend, so lenders would do well to ensure their policies and procedures concerning the protection of customer information comply with these new statutes and any future ones.

These new regulations are occurring at both the federal and state levels, as seen in the tables below:

New Federal Legislation

Rule Name	What It Does	Introduced By	Stage of Approval
FTC Combating Auto Retail Scams (CARS) Rule	Aimed to enhance transparency in auto sales by requiring clear disclosures of pricing, financing terms, and optional add-ons; prohibited deceptive practices.	FTC	Vacated by Fifth Circuit Court in Jan 2025; returned to FTC for reconsideration
Texas Commercial Sales-Based Financing Law	Prohibits sales-based financing providers from automatically debiting a merchant’s account unless they hold a perfected first-position security interest; includes broker registration and state oversight provisions.	Texas Legislature	Passed both House and Senate; awaiting Governor’s signature as of May 2025
Rule on Prohibited Contract Terms (Regulation AA)	Seeks to ban certain contractual clauses in consumer financial agreements that waive legal rights or limit free expression, aligning with existing FTC Credit Practices Rule provisions.	CFPB	Proposed rule issued on Jan 2025; currently open for public comment

State Level legislation

State	Law	Effective Date	What It Does
California	Fair Access to Credit Act (AB 539)	Jan 2020	Sets a 36% interest rate cap on installment loans between $2,500 and $10,000 and requires minimum loan terms to prevent debt traps
	Consumer Financial Protection Law (CCFPL)	Jan 2021	Establishes the Department of Financial Protection and Innovation (DFPI) with expanded authority to oversee nonbank financial services and enforce consumer protection laws
	SB 1099	Jan 2025	Enhances transparency in the state’s newborn screening program and imposes new compliance requirements on commercial debt collectors
Illinois	Predatory Loan Prevention Act (PLPA)	Mar 2021	Imposes a 36% APR cap on consumer loans to curb predatory lending practices
New Mexico	HB 132	Jan 2023	Caps interest rates at 36% APR for loans up to $10,000, replacing the previous 175% cap, to protect consumers from high-cost loans
New York	23 NYCRR Part 500	Dec 2023	Updates cybersecurity requirements for financial institutions, including enhanced incident reporting and governance obligations

Enforcement Focus in 2025

The most severe changes in auto finance rules and regulations has occurred in the Consumer Financial Protection Bureau (CFPB), resulting from changes in leadership that have led to a corresponding operational halt, reinstatement, and shifting responsibilities to the states:

As a result, other federal agencies have been forced to take on additional enforcement responsibilities, but this has fallen much heavier on state-level regulators, who currently take on the bulk of enforcement duties.

Agency	2025 Changes
CFPB	Significant reduction in activities; withdrawal of guidance; dismissal of major enforcement actions
FTC	Continues enforcement but faces procedural challenges, such as the vacating of the CARS Rule
FDIC	Continues to be active, particularly in terms of safety and soundness exams as well as its work with the DOJ on fair lending violation referrals
State AGs & Regulators	Increased responsibility and authority to enforce consumer protection laws amid federal pullback

This makes it particularly difficult for lenders to know what to do. In the absence of a strong federal regulatory presence, lenders are turning increasingly to state-level as well as private compliance solutions to ensure that they adhere to federal and state-level regulations.

How Technology Aids Compliance

With ever-changing auto finance rules and regulations, along with continuously evolving legislation, it can be difficult for lenders to maintain compliance. Specific technologies now allow auto lenders to make fairer decisions, better protect consumer data, provide digital documentation and prevent fraud.

All of this also helps ensure lenders maintain compliance with current auto finance rules and regulations. By adopting cutting-edge lending systems that incorporate analytical tools, automation, and the digitization of documents, lenders can make themselves more transparent.

Compliance at the Point of Loan Origination

With the limits placed by courts in recent years on federal agencies, it’s very probable that state regulators will step up enforcement of legislation affecting auto finance. Rules and regulations first affect consumers during the application process. To make this process fairer and compliance easier, lenders should adopt an automated loan origination system (LOS), which allows lenders to better comply with relevant rules and regulations. Auto finance companies can then eliminate much of the variability that often occurs when origination processes are done manually.

Advantages of a modern cloud-based LOS that help auto lenders comply include:

• Tracking which, when, where, and for whom decision rules are altered should an audit occur
• Can create and implement new decision rules without the need for coding or other technical experience
• Easy-to-modify decision rules to mirror changes in federal or state auto finance rules and regulations
• Negates the need of human stakeholders like underwriters or servicing agents to remember specifics concerning complying with specific rules or regulations.

These capabilities are much more expensive and time-consuming with an older legacy system or LOS that requires third-party developers to alter how a lease or loan is underwritten. The latest LOS helps overcome these barriers that previously made compliance so difficult. Not only does it make inputting new decision rules easier, but it also provides auto lenders with a way to better evaluate and take action on data collected during the application process.