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.
However, crucial differences between houses and cars as both financial assets and consumer goods demand that regulators proceed with caution. Limiting access to automobile credit could have more disastrous and far-reaching consequences for household incomes and access to public services than limiting access to mortgages. The substitutability of mortgages and rent payments has no good analogue in automobile finance. Furthermore, the ease of vehicle repossession presents both a need for regulation and a risk for regulators: the more efficient repossession standards are, the more likely a subprime bubble will burst at an earlier stage in its development, which reduces systemic risk. Financial regulators should bring these asset distinctions to the fore when crafting a response to the current auto market's widespread subprime lending and alarming default rates. Regulators can and should more aggressively enforce existing consumer protection standards, such as prohibitions against unfair, deceptive, and abusive practices, to reduce the risk of predatory auto lending which ignores consumers' ability to repay.