The Consumer Financial Protection Bureau’s 2013 bulletin cautioning lenders offering auto loans through dealerships that they remain accountable for complying with fair lending laws has sparked questions regarding how the CFPB identifies problematic discriminatory practices. In an effort to address these concerns, CFPB Director Cordray reported during the House Financial Services Committee’s hearing on the CFPB’s fifth Semi-Annual Report that the CFPB will be issuing a white paper later this summer regarding the proxy methodology it uses to determine the presence of discrimination in the indirect auto lending market. Such guidance will be even more important given that the CFPB’s 2014 Semi-Annual Report specifically stated that conducting targeted Equal Credit Opportunity Act (ECOA) reviews of auto lending remained a priority area for the CFPB.
The CFPB and other regulators have been critical of “dealer participation” programs that are prevalent in the indirect lending industry which allow dealers to set, and consumers to negotiate, the amount of markup a dealer receives for originating an auto financing. The CFPB has repeatedly stated that it believes that allowing “discretion” in pricing of financing by dealers can lead to violations of ECOA, with some groups being charged, on average, more than other groups. Troutman Sanders has commented on the CFPB’s stance here and here regarding the CFPB’s agenda to eradicate discretion in dealer pricing of financing, so as to fundamentally reform a basic business practice in the indirect lending industry. The CFPB’s announcements likely stem from rising pressure from the industry and members of Congress for an explanation of how the CFPB determines that discrimination exists in these transactions.