Pump the Brakes: What Financial Regulators Should Consider in Trying to Prevent a Subprime Auto Loan Bubble

Abstract

The possibility of a subprime auto finance bubble gives financial regulators an opportunity to navigate a burgeoning crisis in real time. Lessons learned from the 2008 financial crisis and the implementation of the Dodd-Frank Act prompt the question whether financial regulators should adopt an ability-to-repay rule for auto lending similar to the Consumer Financial Protection Bureau’s Mortgage Ability-to-Repay Rule. In determining whether to adopt a rule, financial regulators should consider how, if at all, enforcement and adjudication could help stabilize the increasingly risky auto finance market. For both enforcement and rulemaking, the role of private attorneys general could prove critical to deterring abusive lending and cooling off a dangerously permissive market.