Five prominent industry trade groups sent a letter to the CFPB yesterday seeking “to engage the CFPB in a constructive dialogue” on the study of indirect auto financing commissioned by the American Financial Services Association. The study, which was conducted by Charles River Associates, found that the CFPB’s proxy methodology for measuring disparities in auto dealer reserve was “conceptually flawed in its application and subject to significant bias and estimation error.” Among the study’s other key findings was that the CFPB’s preferred alternative dealer compensation methods, namely the use of a fixed fee, fixed percentage of the amount financed, or hybrid of the two, may increase the cost of credit for consumers.
The letter was sent by the American Bankers Association, American Financial Services Association, Consumer Bankers Association, Financial Services Roundtable, and U.S. Chamber of Commerce. The letter urges the CFPB to “conduct a thorough review of the CRA study, provide a public response to its findings and recommendations, and correct any bias in its testing methodology, before pursuing further dealer mark-up discrimination through supervisory or enforcement action.” The letter also lists specific issues the CFPB should address in its public response, including the bias in the CFPB’s Bayesian Improved Surname Geocoding (BISG) proxy methodology and its overestimation of individuals within protected classes.
The National Automobile Dealers Association, American International Automobile Dealers Association, and National Association of Minority Automobile Dealers issued a press release stating that they “applauded the efforts of five financial services organizations to fix the serious flaws in the Consumer Financial Protection Bureau’s approach to regulating auto financing.”