Republicans Demand Answers from CFPB on Indirect Auto Lending Guidelines
Following up on a demand for transparency expressed by thirteen House Democrats to the Consumer Financial Protection Bureau (CFPB) in late May, House Republicans are now similarly insisting that the CFPB explain its rationale behind the new fair lending guidelines for auto lenders.
Thirty-five House Republicans sent a letter dated June 20, 2013 to the CFPB expressing concern about the intent and methodology of the guidelines. The Republicans’ inquiry comes after the CFPB issued guidance in March 2013 to the auto finance industry warning that auto lenders needed to “impos[e] controls on dealer markup and compensation policies,” “eliminate[e] dealer discretion to mark up buy rates and fairly compensat[e] dealers using another mechanism . . . that does not result in discrimination,” and revamp their compliance efforts. The CFPB simultaneously instituted investigations against several auto lenders. These investigations of the auto finance industry likely are focused on statistical analyses of lenders’ loan portfolios targeting signs of so-called disparate impact against groups protected under the Equal Credit Opportunity Act (“ECOA”). Since its initial announcements relating to fair lending in the auto industry, the CFPB has taken a firm stand that it may police what it considers discriminatory policies in the auto sales industry if such policies create a disparate, negative impact when credit is extended to certain groups. The CFPB’s March 2013 bulletin is available here. Troutman Sanders reported on these developments at the time in an advisory located here, and noted that the CFPB’s scrutiny seeks nothing less than to “fundamentally reform the indirect auto lending market.”
The Republicans’ letter requested details from the CFPB regarding its methodology for determining both the background of certain borrowers and any pricing discrepancies, among other things. The House GOP concluded that “it appears to us that a loss to consumers would occur if the CFPB uses its supervisory and/or enforcement authority to weaken the intense competition that results from the ability to negotiate with the dealer to obtain financing terms that are more competitive than the best terms the consumer can secure from any other source.” The Republicans also criticized the CFPB for “initiating this process without a public hearing, without public comment, and without releasing the data, methodology, or analysis it relied upon to support such an important change in policy.”
Similarly, the House Democrats’ inquiry last month requested the methodology used by the CFPB to identify different groups of consumers, the “factors it is holding constant” to ensure that any discrepancies are due to consumers’ backgrounds, and “the numerical threshold at which the [CFPB] determines that disparate impact is present.” Their letter also requested additional information on the compliance measures outlined in the CFPB’s March 2013 bulletin. The CFPB has yet to respond, even though the House Democrats sought a response by June 7. The Republicans have asked the CFPB to respond within 30 days.
Troutman Sanders attorneys have been following, and commenting on, the development of the CFPB’s fair lending policies and investigations since the Bureau’s inception. We also have extensive experience advising leading consumer automotive retailers and automotive finance clients on compliance with state and federal laws and regulations. We will continue to monitor developments on the CFPB’s scrutiny of the auto finance industry, and provide analysis of such developments as they arise.
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