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Disparate Impact Challenge Ends in Settlement on Eve of CFPB Forum

November 14, 2013

By Brittany-Marie Swanson

WASHINGTON and MOUNT HOLLY, N.J. — On the eve of a public forum on auto lending, hosted by the Consumer Financial Protection Bureau at its Washington, D.C., headquarters, a town council in N.J. voted to settle a housing discrimination case that relied on a much-disputed legal theory called “disparate impact.” The Consumer Financial Protection Bureau (CFPB) is currently using the theory in its review of the indirect financing channel.

The settlement comes half a decade after 20 low-income minority residents of Mount Holly Gardens sued the township over a redevelopment plan that would price them out of the neighborhood. It will allow residents an opportunity to stay and benefit from the redevelopment.

“This is a historic settlement because it demonstrates that all the parties were willing and eager to work toward a global resolution that serves the interests of the Gardens’ residents and Mount Holly Township as a whole,” said Township Attorney George Saponaro after the council’s unanimous vote to approve the settlement.  

The auto industry was not nearly as thrilled with the outcome, however. Due to the settlement, the Supreme Court will not hear arguments beginning Dec. 4 on whether minority residents can sue under the Fair Housing Act when a policy has a disparate impact on them.  This means the CFPB is still free to use the disparate impact theory when determining whether auto lenders’ policies are causing minorities to pay higher rates.  

“AFSA is disappointed that the Mount Holly case will not make it to the Supreme Court, as the disparate impact theory it would have examined is being used broadly and aggressively by federal regulators,” Bill HImpler, the association’s  executive vice president, told F&I and Showroom. “Disparate impact remains a hot-button issue between regulators, lenders, and other related industries.

“The court's deliberation on the merits of this legal theory and its applicability under the Fair Housing Act would have made this a landmark case, setting a precedent that would likely extend to fair lending statutes,” he added, noting that the Mount Holly case was the second disparate impact case pending before the high court that was settled, leaving many questions unanswered.

On the same day as the Mount Holly vote, CFPB Director Richard Cordray made a semi-annual report to Congress, fielding questions on how it's regulating the auto finance industry from both Senator Elizabeth Warren (D-Mass.) and Senator Jerry Moran (R-Kan.).

“We … want to make sure that when a consumer goes in to get a loan to buy a car that they aren’t unwittingly being forced to pay more based on assumptions made about their racial or ethnic background,” Cordray said. “We’ll be taking great care as to how we move forward here, but we think there are some key core American principals at stake.”

Cordray, who called auto lending an area of “considerable sensitivity,” told Sen. Moran that Thursday morning’s public forum did not occur sooner because of concerns over jurisdiction.  The bureau does not have direct supervisory powers over auto dealers thanks to the exemption the National Automotive Dealers Association won in the months leading up to the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

“We’re trying very hard to observe the line Congress drew, but it’s not a natural line,” Cordray added.

The forum marks the first time the CFPB has accepted public input since it issued a fair lending guidance in March. The guidance, which informed auto lenders they would be held responsible for discriminatory markups, spurred calls for information from Congress and the NADA, among others. The NADA has already expressed dissatisfaction with the forum, stating that the CFPB still refuses to reveal its methodology for determining discrimination and that the forum “raises more questions than answers.”

AFSA’s Himpler, however, thinks the forum is a step in the right direction.

“Today’s CFPB auto finance forum was a constructive exercise that allowed various stakeholders to share their perspectives on the auto finance market,” Himpler said. “AFSA hopes that this meeting marks the beginning of an ongoing dialogue between industry, regulators, and consumers on this important issue rather than a one-time exercise.”


  1. 1. William V. Fowler [ November 14, 2013 @ 12:53PM ]

    In addition to all this, Banks, Credit Unions, and Other Financing Sources Must Now Re-Assess Their Auto Dealers Relationships

    Vendor management of third party service providers (such as Auto Dealers) has become an increasingly important issue for all Banks, Credit Unions, and other Financing Sources (FS), to closely consider and regularly monitor. All of these auto lending financing sources are responsible for the practices of their Auto Dealer during the auto loan origination process and may be held accountable for the Auto Dealers violations of consumer protection laws and regulations as well as unfair, deceptive and abusive acts and practices in the manner in which they originate auto loans. Regulators have increased their focus on third party auto dealer’s contracts and activities and are in the process of requiring all of these FS to conduct a risk assessment for each of their third party auto dealer they have a relationship with. Plus these regulators, predominately the CFPB are putting policies and procedures in place requiring all of these FS to manage their relationships in full compliance, and maintain documentation of all initial and ongoing due diligence and monitoring they do on their auto dealers.

    In one of its first enforcement actions, the Consumer Financial Protection Bureau (CFPB) cited American Express Centurion Bank with violations of deceptive debt collection, deceptive marketing, excessive late fees, inadequate credit dispute reporting and lack of proper oversight of the bank's management and board. In the Consent Order, it was noted that all but one of the cited violations resulted from "deficient management oversight of the bank's service providers." The Consent Order required the Bank "to develop policies to maintain effective monitoring, training, record-keeping and audit procedures to review each aspect of the Bank's agreements with its Service Providers and the services performed for the Bank pursuant to these agreements."


  2. 2. William V. Fowler [ November 14, 2013 @ 12:56PM ]

    In response to the increased scrutiny on vendor management practices, all FS’s are now required to conduct a risk assessment on each of their third party auto dealer’s relationship. The risk assessment should be performed not only as part of the initial due diligence conducted prior to entering into a relationship, but also on an ongoing process during their relationship.

    Products and Services

    All products and/or services that are offered by the Auto Dealer to their customers must provide a definite benefit to the customer, especially when there is an out-of-pocket cost for the customer. It is important for the FS to gain a true understanding of all fees associated with any products or services offered by each auto dealer. Any fees that will be part of the sale to a customer during the auto loan sales process must be fully disclosed to the customer and the financing source at the same time. The auto dealer must also provide a customer a side by side comparison of all the financing sources adverse action notices for each of the Banks, Credit Unions, and Other Financing Sources they are associated with.

    I am happy to say to you that my company can provide that service right now. If any Auto Dealer, Bank, Credit Union, and or other Financing Sources would like a live demonstration please contact me.

  3. 3. Bubba B [ November 14, 2013 @ 02:01PM ]

    William V. Fowler should be ashamed of himself for using this forum to advertise his business. I predict that your business will fail miserably.

  4. 4. William V. Fowler [ November 19, 2013 @ 03:03PM ]

    Bubba, do you want to continue to have a major problem before you are do you want a solution so you can go on with your business.

    Is their another solution out their?

    The answer is NO!

    So if you want a solution then contact me.!!!


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