Privacy Concerns By Auto Lenders Shape SEC Asset-Backed Security Rule

Cameron Aubernon
by Cameron Aubernon

It took four years, but the Securities and Exchange Commission has put the final touches on a rule regarding asset-backed securities — including auto loans and leases — and what information is given when a company or investor takes on an ABS.

Juan Barnett of DC Car Geek reports the work on the rule began in 2010, re-proposed with the inclusion of Dodd-Frank Act requirements in 2011, and brought up for consideration again earlier this year. Barnett adds that a total of 240 comments — the majority from financial institutions — were submitted to the SEC in the same period.

As far as the automotive finance industry goes, a consortium dubbed Vehicle ABS Sponsors delivered a 97-page comment in 2012, bringing up numerous concerns about the rule.

One concern in particular focused on privacy issues. Were the then-proposed framework to be enacted, the consortium feared competitors from within and outside the ABS market would use the massive amounts of data collected by its members to upend the industry as a whole:

Ordinarily, we would consider someone appropriating our data to be wrongfully taking our private property and harming us in the marketplace. We think it is highly inappropriate for a government-mandated program to permit, and indeed facilitate, this practice.

Earlier this year, SEC Commissioner Michael Piwowar acknowledged those and similar concerns, suggesting those who do participate in the ABS market “simply follow the statute and require disclosure of asset-level data only if such data is necessary for investors to independently perform due diligence.”

Thanks to a rule modification regarding the sharing of loan-level data, both sides of the ABS game — issuers and investors — can use a private database to talk amongst themselves. Previously, the data would have been made readily available through the SEC’s public database, EDGAR.

Cameron Aubernon
Cameron Aubernon

Seattle-based writer, blogger, and photographer for many a publication. Born in Louisville. Raised in Kansas. Where I lay my head is home.

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  • Bunkie Bunkie on Sep 25, 2014

    I've long felt that there is nothing fundamentally wrong with the idea of asset-backed securities. The problem is how to implement accurate assessments of the risk thereof. Which brings us to the fundamental conflict: A truly accurate assessment of risk made available to everyone would lower the profits made by the firms creating and trading them. It's the paradox of the information-rich age. With complete data and good analysis, an ABS can be accurately valued at any time. This would remove the edge that some have. This, I think, is the real reason for the resistance to divulging any information about the underlying assets.

    • Landcrusher Landcrusher on Sep 25, 2014

      I'm not sure I understand. A "truly accurate assessment of risk" would necessarily be a proprietary product, not raw data. What kind of data are we talking about? I may have some misconceptions. It sounds to me that these guys are really afraid of being commoditized, but that's precisely what should be happening to them. They need to figure out ways to truly add value other than slick marketing and sales. Are they really trying to sell fruit without letting people look in the basket?

  • Xeranar Xeranar on Sep 25, 2014

    "We don't want you to watch what we're doing because technically if we're doing wrong it's still on you to find out!" Interesting argument and I imagine amongst the hard-core objectivists out there it holds water but in the reality of a financial backed economy like we have today watching over industry giants with trillions in assets is a normal and accepted management option. The argument that it would be free to the public to use and abuse is a bit much, in a technical sense, yes the data would be accessible through EDGAR but even if rivals were to spend the manpower to review it it wouldn't necessarily gleam intel that wouldn't have been available through any good consulting firm. This is more so a case of trying to keep the prying eyes of watch dog groups off them. It isn't that the watch dog group can't buy into the database (as the rule changes wouldn't prohibit them from buying stock to view it) but it would prohibit them from publicizing it without going into questionable legal territory. Any attempt to stymie the public's knowledge of misappropriation by business is a crime against all of us.

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