CFPB method to find race bias in auto loans is found to be flawed
The method used by the Consumer Financial Protection Bureau to assess racial bias in auto loans is flawed, according to a new report from the American Financial Services Association.
A focus on portfolio-wide measurement of disparities with respect to dealer reserve, with no consideration for economic factors that might influence dealer reserve, ignores realities of the market, the report says.
The study finds no evidence that dealers systematically charge different reserves based on race and ethnicity. The findings are these:
First, the CFPBês method of identifying consumersê racial and ethnic background was flawed and often came up with the wrong answer. That means the CFPB dramatically overestimated the differences paid by different ethnic groups.
Second, the method failed to account for numerous factors unrelated to the consumerês background that affect the amount consumers paid for dealer reserve.
Third, examining differences in dealer reserve at the portfolio level is meaningless because doing so fails to account for legitimate reasons for pricing differences at the retail level.
NADA endorsed the study. This study shows that the CFPBês attempt to upend the auto lending process is insufficiently informed and the victim of flawed assumptions and inadequate peer review, said NADA President Peter Welch.
NADA is pushing a bipartisan bill, H.R. 5403, that would rescind the CFPBês 2013 auto loan guidance. The bill so far has 135 cosponsors.Download Bulletin PDF