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CFPB Engaged in Fair-Lending Actions Against Six Auto Lenders

May 29, 2014

WASHINGTON, D.C. — Auto Finance News reported earlier this month that the Consumer Financial Protection Bureau (CFPB) is engaged in fair-lending actions against six auto finance sources, including three banks and three nonbanks.

According to the media outlet’s source, the three banks will likely settle with the bureau. The names of the organizations were not revealed. To read the full article, click here.

A spokesperson for the CFPB declined to comment on the report.

Jeff Langer, assistant director of the CFPB’s Office of Installment and Liquidity Lending Markets, and Eric Reusch, program manager for the CFPB’s Office of Installment and Liquidity Markets, participated in a session this morning at this week’s Non-Prime Auto Financing Conference. Media, however, were asked to leave the room during the Q&A session, which was moderated by former CFPB official Rick Hackett, now a partner with Hudson Cook LLP.

In recent filings with the Securities and Exchange Commission, Fifth Third Bank, American Honda Finance Corp. and Toyota Motor Credit Corp. revealed that they have received requests for information regarding their activities in the indirect auto finance segment.

In its filing, Honda Financial Services stated that the CFPB and the U.S. Department of Justice have requested information about “whether discretionary pricing practices of dealers originating retail installment sale contracts raise fair lending issues for banks and finance companies that purchase the contracts from dealers.” Toyota made a similar claim in its filing with the SEC.

Honda’s captive finance company also revealed that it has received a subpoena from a state agency regarding information related to the state’s fair lending laws. Honda Financial Service and Toyota Motor Credit said in their filings that none of the agencies have alleged any wrongdoings.

“Although … the CFPB, the U.S. Department of Justice or state agency [have] alleged any wrongdoing on our part, we cannot predict the outcome of these inquiries,” Honda Financial Service’s stated in its filing.

In its filing, Toyota Motor Credit Corp. said: “At this time, we are uncertain whether we will be subject to regulatory actions, and given the preliminary state of this inquiry, we are unable to estimate the amount or range of potential loss in the event any such actions are taken.”

This past May, Fifth Third Bank revealed in its regulatory filing that the Department of Justice is investigating whether it auto lending segment engaged in discriminatory practices. “Any claim resulting from this investigation could include direct and indirect damages and civil money penalties,” the filing read, in part.”

This past December, the DOJ and CFPB reached the largest auto loan discrimination settlement in the federal government’s history. It resolved allegations that Ally Financial and Ally Bank engaged in discriminatory lending practices since April 2011. At issue was the finance source’s practice of allowing dealers to mark up interest rates on finance contracts, a policy the two regulators alleged caused 100,000 African-American, 125,000 Hispanics and 10,000 Asian/Pacific Islanders to pay Ally higher interest rates and white car buyers.

The settlement provided $80 million in compensation for victims of past discrimination and required Ally pay $18 million to the bureau’s Civil Penalty Fund. Ally must also refund discriminatory overcharges to borrowers for the next three years unless it significantly reduces disparities in unjustified interest rate markups.  

Last month, F&I and Showroom published an interview with Hackett, the CFPB’s former point man to the auto finance industry. While he decline to comment on the bureau’s consent order against Ally, he said he believed “Ally is not alone in the next steps it has to take,” referring to the settlement’s requirement that Ally improve its monitoring of dealer pricing practices.

Comments

  1. 1. Bruce Fell [ May 29, 2014 @ 02:51PM ]

    I just wonder how Ally bank was able to determine which credit apps came from African-American, Hispanic, and Asian/Pacific Islanders since the lender never actually sees the customer thanks to electronic submissions.

  2. 2. Joseph McKinney [ May 29, 2014 @ 03:04PM ]

    Who are the unnamed banks?

    This article was poorly structured and edited.

  3. 3. Wayne B. [ May 29, 2014 @ 03:11PM ]

    Makes you wonder how deep they can look into a social security number to find information out like race????

  4. 4. Charles Fowler [ May 29, 2014 @ 04:34PM ]

    EXTORTION, that's all… government extortion. Interfering with business, interfering with economic recovery and progress.

  5. 5. rh [ May 29, 2014 @ 04:44PM ]

    What about non-minority purchasers who were charged more that their minority counterparts? Wouldn't they also be the victim of disparate discrimination or is this type of "discrimination" one-sided? Seems that the concept is that you can only be the "victim" of discrimination if you are non-white or non-Asian.

  6. 6. rh [ May 29, 2014 @ 04:45PM ]

    What about non-minority purchasers who were charged more that their minority counterparts? Wouldn't they also be the victim of disparate discrimination or is this type of "discrimination" one-sided? Seems that the concept is that you can only be the "victim" of discrimination if you are non-white or non-Asian.

  7. 7. ds [ May 29, 2014 @ 05:21PM ]

    I guess the article calls the afro American for non educated.

  8. 8. Monty Hamilton [ May 31, 2014 @ 08:10AM ]

    What about all the "Title Loans", Furniture and Appliance on weekly payments, and all other kinds of "Weekly Payments " that are doing business? It's not just the car industry!!!

  9. 9. Linda [ June 02, 2014 @ 06:39AM ]

    I don't know how "race" comes into any part of all of this when the customer's credit score dictates the rate that they are charged! If they don't pay their bills on time or rack their credit cards up to the limit and never pay them off, they are going to be charged a higher rate! It doesn't matter what color or race they are!

  10. 10. Tug [ June 06, 2014 @ 09:35AM ]

    No Conflict of Interest in CFPB investigating Ally - who's principal investors included the Government - and who refused to fight the investigation because it was able to claim an $18M credit in the repayment of tarp money via the fine. CFPB has never put in writing, any guideline, or procedure, to support it's claims of racial profiling and interest rate markup. NONE. Salem witch hunts that will end once the current Administration is no longer in place to staff this entity with Washington bureaucrats.

  11. 11. K REBHOLZ [ June 07, 2014 @ 10:30AM ]

    The birth of the BEACON score was designed to base the customers rate. The beacon score does not discriminate for race, creed, religious belief,color,etc. It was designed base on how consumer's pay thier bills in a timley manner, hence, people who get preferred rates prefer to pay thier bills on a timley basis.

  12. 12. howell clark [ June 13, 2014 @ 08:13AM ]

    the cfpb shold actually read ncnb for no cash for nobody as this is what the end result will be for their desired policies. it will then really be only loans for folks that take care of business and all these folks they worry about getting an extra point of interest above what someone else got will really pay when the only option is a subprime company. sure hope the congressional bill just out of committee is succesful in clipping this alphabet soup groups wings.

  13. 13. STEVEJ [ June 17, 2014 @ 01:21PM ]

    iS THE CFPB ABSOLUTLEY SURE THERE WERE NOT 101,000 AFRICAN AMERICAN CUSTOMER THAT PAID A HIGHER RATE INSTEAD OF 100,000.HOW ON EARTH CAN THEY KNOW THAT. I WANT THEM TO SHOW ANYONE OR ANY COMPANY HOW THEY DETERMINE THE RACE OF A BUYER BY HIS NAME.SOME HOT SHOT ATTORNEY ONE DAY IS GOING TO FIGURE OUT THAT THE DEALER IS THE LENDER BEFORE WE ASSIGN CONTRACT. THEN WE WILL FALL U NDER THE SCRUNITY OF THE CFPB

  14. 14. Deb C [ July 03, 2014 @ 12:39PM ]

    Dealers already DO fall under the scrutiny of the CFPB, and long before that the FTC, along with several other acronymn'd organizations. ZIP Code demographics can determine economic-ethnicity microclimates to inspire witchhunting. Law school 101: poise the question to get the answer you want if you're not interested in truth or facts. While NADA is on this at the National level, the wise dealer has defensivable compliance policies and procedures in place executed each time a customer goes through the purchasing process. Think this applies to finance deals only? Think again. And be proactively prepared.

 

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