CFPB looks to expand regulatory reach to finance captives on auto loans
NADA offers its fair lending program as an alternative
The Consumer Financial Protection Bureau proposed rulemaking last week that would extend its supervisory authority to overseeing auto lending practices by finance captives because the agency continues to believe that minorities are being discriminated against. Challenging CFPB on the discrimination charges, NADA proposed that the agency instead accept the associationês Fair Credit Compliance Policy as an alternative to rule making that NADA believes is unnecessary. The policy, issued by NADA earlier this year, was based on a 2007 model developed by the Department of Justice to resolve a discrimination case. NADAês proposal was made jointly with the National Association of Minority Automobile Dealers (NAMAD) and the American International Automobile Dealers Association (AIADA).
There are legitimate, market-based reasons for disparities in interest rates from monthly budget constraints, to the presence of more competitive offers, to inventory reduction considerations all of which are nondiscriminatory and all of which can be documented in the transaction, the statement said. NADAês Fair Credit Compliance Policy, the statement
continued, adopts a robust retail compliance program that documents the basis of the pricing decision to effectively reduce the risk of discrimination in the purchasing process.
The CFPB said in a statement accompanying its proposal that it had taken supervisory actions against several banks after finding discrimination in their auto lending practices. It fined the banks about $56 million, covering up to 190,000 consumers. The CFPB proposal would cover about 38 nonbank auto finance companies that handle 10,000 loans or leases a year mostly captives.
The CFPB listed ways lenders can limit their fair lending risk: Conduct internal monitoring, and limit or eliminate dealer markup where dealers participate as credit arrangers.
When the CFPB issued its rulemaking proposal, it also issued a report explaining its methodology for finding discrimination. The agency uses what it calls a proxy method, relying upon the consumerês last name and residence to figure out which consumers are African-American, Hispanic or Asian. But NADA continues to be concerned that many of the questions that Congress and others have posed to CFPB about their approach to auto loans remain unanswered.
CFPBês proposed rule is open for comment for 60 days.
Download Bulletin PDF