As we reported, on May 28, 2013, Democratic members of the House Committee on Financial Services sent a letter to Director Cordray requesting information about the CFPB’s activities related to auto fair lending, including “the methodology the CFPB has adopted to determine whether fair lending violations exist.”
In his response dated June 20, Director Cordray states that a typical fair lending exam of an “indirect auto lender would include a review of credit denials, interest 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’).”
Mr. Cordray states that the CFPB uses a “proxy methodology” for differentiating among consumers based on race, ethnicity and gender. According to Mr. Cordray, the CFPB uses both surnames and geographic location in its proxy data and conducts its proxy analysis using publicly available data from the Social Security Administration and the Census Bureau.
The information provided by Mr. Cordray does not appear to be fully responsive to the Democrats’ request. In asking for information about the CFPB’s methodology for establishing discrimination, the Democrats wrote that “[s]pecifically, we would like to know the method the Bureau is using to identify different groups of consumers, the factors it is holding constant to ensure its findings of pricing differentials are attributable to a consumer’s background, and the numerical threshold at which the Bureau determines that disparate impact is present.”
While Mr. Cordray discussed the CFPB’s use of proxies, he did not address the other items of information sought by Democrats beyond stating that the CFPB’s analysis “considers appropriate analytical controls in reviewing data to determine whether a specific policy results in unlawful differences on a prohibited basis.”
Mr. Cordray also comments in his letter that the Bureau has found “frequent instances where lenders had robust fair lending compliance programs for mortgage lending but weak or non-existent fair lending compliance programs for other types of consumer lending.”
Democrats are not alone in requesting auto fair lending information from the CFPB. According to an American Banker report, House Republicans, including 27 members of the House Committee on Financial Services, sent a letter to the CFPB on June 20 asking for details on how the CFPB obtains data such as borrower background and pricing discrepancies. The letter reportedly raises concerns that the CFPB’s guidance relating to disparate impact analysis of dealer rate participation will hurt consumers by weakening the competition among dealers that results from consumers being able to negotiate financing terms with dealers. It also reportedly criticizes the CFPB for adopting the guidance without providing an opportunity for public comment and without releasing the data, methodology and analysis it relied on.