Senators Demand Answers Regarding CFPB’s Guidance Targeting Indirect Auto Lenders

Senators Demand Answers Regarding CFPB’s Guidance Targeting Indirect Auto Lenders

 by Michael J. Blalock

On Wednesday (October 30, 2013), a bipartisan group of twenty-two U.S. Senators—11 Democrats and 11 Republicans—asked the Consumer Financial Protection Bureau (CFPB or Bureau) to provide details concerning the methodology used by the Bureau in issuing its March 21, 2013 bulletin concerning “Indirect Auto Lending and Compliance with the Equal Credit Opportunity Act.”

According to the Senate letter, the March 21, 2013 guidance bulletin has been “widely interpreted as pressuring lenders to eliminate or severely limit an auto dealer’s discretion to negotiate competitive financing for their customers, and instead encourage lenders to compensate auto dealers through ‘a different mechanism…such as a flat fee per transaction.’”  That interpretation is a result of the CFPB’s warning that indirect lenders may be liable under both disparate treatment and disparate impact theories for discrimination resulting from dealer markup and compensation policies, which according to the Bureau create a “significant risk” of “pricing disparities on the basis of race, national origin, and potentially other prohibited bases.” 

The Senate letter requests that CFPB provide the statistical methodology it employs to determine whether a disparate impact is present in an auto creditor’s portfolio, as well as a detailed description of the Bureau’s coordination with the Federal Reserve and Federal Trade Commission prior to the issuance of its guidance.  Perhaps the most telling requests are for the Bureau to explain its “decision to avoid the Administrative Procedures Act rulemaking process and instead seek to bring about this market change via a guidance bulletin” and to explain “why the Bureau did not afford the public an opportunity to comment on the content of the guidance or its potential effect on the marketplace.” 

The Senate letter is a follow up to an earlier letter signed by a bipartisan majority of the House Financial Services Committee.  According to the Senate letter, the CFPB failed to provide complete responses to several of the questions raised by the House committee members.  Whether the CFPB chooses to ignore the Senate letter is unknown, but the Senate letter requested a response within 30 days. 

Read more articles about the Consumer Financial Protection Bureau at Dykema’s CFPB Blog privacy

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