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CFPB Responds to House Republicans

August 13, 2013

WASHINGTON, D.C. — On August 2, the Consumer Financial Protection Bureau (CFPB) responded to a letter submitted by 35 Republican members of the U.S. House of Representatives. The letter requested information on the CFPB’s use of the disparate impact theory in its review of dealer participation programs auto finance sources offer to dealers.

In March, the bureau issued guidance that said finance sources could be held liable if the CFPB found that dealer participation programs create a bias that causes minority groups to pay higher rates. Members of Congress, however, were concerned that the bureau had not disclosed the methodology it is using to determine if discrimination occurred.

“We are all strongly opposed to any discrimination in lending,” the letter, which was issued by House Republicans on June 20, stated. “However, it is highly concerning that the agency is issuing such significant new directives without affording the public a proper opportunity to comment on its methodology and analysis for determining whether discrimination has occurred and without addressing the effect of its directives on consumer financing and choice in the intensely competitive auto lending market.”

In response to why it did not seek public comment on its indirect auto lending guidance, the CFPB said the Administrative Procedure Act “does not mandate notice and comment for general statements of policy, non-binding informational guidelines, and interpretive memoranda,” the CFPB Monitor reported yesterday.

According to the CFPB Monitor, the CFPB did not offer any specifics regarding its methodology. Instead, the bureau reiterated that it uses surname and geographic proxies to conduct its analysis using unspecified, publicly available methods.

In June, the bureau responded to a similar letter sent in May by House Democrats.

“The evaluation of whether an indirect auto lender is in compliance with the “Equal Credit Opportunity Act] requires multiple steps,” the CFPB wrote in its June 20 response. “A typical fair lending examination of an indirect auto lender would include a review of credit denials, interested rates quoted by the lender to the dealer (called “buy rates”) , and any discretionary mark-up of the buy rate by the dealer (the interest rate quoted by the dealer to the consumer minus the “buy rate”).

“Determining whether discrimination has occurred is a case-specific and fact-intensive inquiry.”

Comments

  1. 1. Charles F [ September 20, 2013 @ 08:35AM ]

    Seems to me that the lenders base maximum point spreads allowed on the term of the loan, and buy rates based on fico scores and LTV, and other generally accepted structure criteria. The negotiation between the dealer and the customer ultimately is where the point spread/reserve is determined. Regardless of "protected class", all consumers have a nearly unlimited resource today for research. Buyers who seek information to assist in negotiation, can find it! Those who don't? Caviat emptor!

  2. 2. Joseph [ November 24, 2013 @ 06:56PM ]

    That makes too much sense Charles.

 

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