A bipartisan group of 22 U.S. Senators –11 Republicans and 11 Democrats–sent a letter to the CFPB yesterday raising concerns about the fair lending auto finance bulletin issued by the CFPB this past March. In particular, the Senators question the CFPB’s efforts to “eliminate or severely limit” dealer finance charge participation “through a ‘disparate impact’ theory of liability under the Equal Credit Opportunity Act” based on the CFPB’s perception that “permitting negotiation over a consumer’s interest rate” creates a significant risk of discriminatory pricing disparities.
In the letter, the Senators observe that dealer finance charge participation “frequently results in consumers obtaining a lower cost of credit than is otherwise available to them” and state that the CFPB “has yet to explain its basis” for its assertion that “‘disparate impact’ discrimination is present in the indirect auto financing market.”
They also state that the CFPB has not released “the complete statistical methodology it employs for determining whether disparate impact is present in an auto lender’s portfolio and the extent to which it considered how the practical effect of its guidance will affect competition in the auto loan marketplace.” In the letter, the Senators request complete details on such methodology and ask the CFPB to describe whether and to what extent it did a cost-benefit analysis into how flat fees would affect the cost of credit for consumers.
Other information requested in the letter includes the full range of the CFPB’s coordination with the Fed and FTC concerning the development of the guidance and an explanation for the CFPB’s decision to “seek to bring about this market change” through issuance of a guidance bulletin rather than by using the Administrative Procedure Act’s rulemaking process and to not solicit public comment on the guidance.
We have been very critical of the CFPB’s application of disparate impact liability to dealer finance charge participation and have expressed concern that the CFPB’s stance will result in higher prices for consumers. The manner in which the CFPB developed the guidance was most recently questioned in a June 2013 letter sent by Republican House members who also requested details concerning the Bureau’s methodology for analyzing potential fair lending violations and took issue with the CFPB’s decision not to solicit public comment before issuing the guidance. Unfortunately, as we observed, the CFPB’s August 2013 response to that letter raised more questions than it answered. We hope the CFPB will be more forthcoming in its response to the Senators’ letter.
I think it is significant that the letter was authored by as many Democrats as Republicans. Let’s not forget that the automobile dealership lobby was successful in exempting car dealers from the CFPB’s jurisdiction. The CFPB has been applying enormous pressure on banks and non-banks that purchase auto finance contracts to determine if the dealer participation in the finance charges is having a disparate impact on car buyers. They have been forced by the CFPB to scrutinize the dealers from whom they are purchasing contracts. Thus, the CFPB seems to be doing an end-run around the auto dealer exemption and a bipartisan group in the Senate does not like it one bit. Stay tuned!