CFPB responds to House Democrats letter on auto lending

CFPB responds to House Democrats letter on auto lending

The Consumer Financial Protection Bureau responded to a letter by several House Democrats requesting background information on the CFPBs March guidance to banks and financial institutions making auto loans, alerting them to possible racial discrimination by dealer credit arrangers. The letter was signed by Director Richard Cordray, who resigned at the end of June. The WANADA Bulletin originally reported on the Democrats letter in a previous issue; it was followed by a similar request by several House Republicans.

In answer to the inquiry by members of Congress, CFPB said its examination of an indirect auto lender would include a review of credit denials, interest rates quoted by the lender to the dealer (called buy rates), and any discretionary markup of the buy rate by the dealer. The Bureau examines the prospect of discrimination on a case-by-case basis.

CFPB lists a few ways a lender may address the risk of discrimination: imposing controls on dealer markup and compensation policies, revising the policies to prohibit unexplained pricing disparities, or eliminating dealer discretion to mark up buy rates and fairly compensate dealers using another mechanism that does not result in discrimination.

CFPB, then, is simply reiterating for the members of Congress its original position on lender compensation of dealer credit arrangers, that being the agencys preference for flat payments as opposed to sliding rates. NADA and the National Association of Minority Auto Dealers (NAMAD) continue to support the existing lender to credit arranger approach, while adamantly denying CFPBs view that dealer discretion in credit rating car buyers is tantamount to illegal discrimination when minority car buyers are involved.

Download Bulletin PDF