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NADA: CFPB’s Actions Detrimental to Consumers

March 27, 2013

MCLEAN, Va. — Last Thursday, the National Automobile Dealers Association (NADA) and the National Association of Minority Automobile Dealers (NAMAD) issued statements denouncing the Consumer Financial Protection Bureau (CFPB)’s recent actions against lending institutions and dealer participation programs.

The trade groups claimed the bulletin the CFPB issued last week “attempts to force auto finance sources into changing the way they compensate dealers without any indication that the bureau has examined the effect this change could have on the cost of credit for consumers.”

The bulletin, which applies to all indirect auto lenders within the agency’s jurisdiction, said lenders that offer auto loans through dealerships will be held responsible for unlawful, discriminatory pricing. The CFPB issued the bulletin following a report that the agency alerted several banking institutions that they could face lawsuits under the Equal Credit Opportunity Act (ECOA).

According to reports, the CFPB is targeting bank policies which allow auto dealers to mark up the interest rates on retail installment sale transactions in exchange for services rendered. The bureau alleges these policies have caused a disparate impact and caused members of minority groups to pay higher rates. 

“The NADA and the NAMAD strongly oppose any form of discrimination in auto lending, and the CFPB guidance appropriately explains that unlawful discrimination has no place in the marketplace,” the statement from NADA read. “However, it is relying on a theory of discrimination that is based on a statistical analysis of past transactions — not intentional conduct — and the CFPB has not provided any information about how it is conducting its analysis.

“Without such basic information as how the CFPB is identifying different groups of consumers, how it is controlling for factors that can affect finance rates but are unrelated to the consumer’s background, and what constitutes a finding of disparate impact, one can have little confidence that the CFPB is conducting its analysis in a statistically-reliable manner.”

On March 1, Ally Financial confirmed in its filing with the Securities and Exchange Commission (SEC) that it is one of the finance sources warned by the CFPB that it could face lawsuits under the ECOA. “The CFPB has recently advised us that they are investigating certain [parts] of our retail financing practices,” read the filing. “It is possible that this could result in actions against us.”

The CFPB’s attempt to eliminate the dealer’s ability to discount the APR will weaken the ability of consumers to secure financing at the lowest possible cost, according to the NADA. “Consumers overwhelmingly choose optional dealer-assisted financing because it’s convenient and competitive,” the statement read. “This anti-competitive approach is not in the interests of consumers and should not be accomplished through guidance and enforcement actions that lack transparency, the opportunity for public comment, and the benefits of a data driven analysis into the effects they would have on consumers and the automobile financing marketplace.”

In 2011, the Federal Trade Commission hosted three roundtables to discuss perceived issues within the automotive retail business. The roundtables brought together industry reps, attorneys and consumer advocates. To illustrate the benefits of dealer participation, the NADA presented an analysis of new-vehicle loans originated between 2008 and 2010.

Using date collected by the Federal Reserve Board and transaction data collected by J.D. Power and Associates, the association showed that consumers who chose the indirect channel vs. direct saved, on average, $635.40 in 2008. In 2009, the average savings climbed to $779.40, then again to $1,162.20 in 2010. In total, dealers helped consumers save $21 billion on new-vehicle financing during that period.

The NADA suggested in its statement issued last Thursday that the CFPB’s approach should not be completed without full participation of the Federal Reserve Board and the Federal Trade Commission.

“Regrettably, no one is well served by such an opaque process,” stated the NADA. “While the NADA and the NAMAD stand ready to work with all of the federal agencies with responsibilities in this area, the NADA and the NAMAD encourage the CFPB to approach this issue in a more considered, transparent and coordinated manner.”

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