New Federal Bureau Looks at Auto Dealership Lending Practices

Consumer Financial Protection Bureau Looks at Auto Lending

Auto deal­ers may not be aware of a new fed­er­al agency, the , ini­ti­at­ed under the Oba­ma admin­is­tra­tion.

As recent­ly as last week, a say­ing that some lenders offer­ing auto loans through auto deal­er­ships are charg­ing minori­ties above-mar­ket inter­est rates and has warned that it will crack down on a prof­it-shar­ing prac­tice between deal­ers and lend­ing com­pa­nies.

The CFPB would force auto lenders “into chang­ing the way they com­pen­sate deal­ers with­out any indi­ca­tion that the bureau has exam­ined the effect this change could have on the cost of cred­it for con­sumers,” the Nation­al Auto­mo­bile Deal­ers Asso­ci­a­tion and Nation­al Asso­ci­a­tion of Minor­i­ty Auto­mo­bile Deal­ers said in a state­ment.

The Con­sumer Finan­cial Pro­tec­tion Bureau has tar­get­ed deal­er reserve and poten­tial dis­crim­i­na­to­ry prac­tices as the agency took its first reg­u­la­to­ry move aimed sole­ly at the auto finance indus­try.

that per­mit deal­ers to increase con­sumer inter­est rates and that com­pen­sate stores with a share of the increased inter­est rev­enues, bet­ter known in the F&I office as deal­er reserve or deal­er par­tic­i­pa­tion.

The agency said it made the notice to pro­vide guid­ance about com­pli­ance with the fair lend­ing require­ments of the Equal Cred­it Oppor­tu­ni­ty Act (ECOA) and its imple­ment­ing reg­u­la­tion, Reg­u­la­tion B.

The CFPB’s review of the auto-lend­ing indus­try marks the first time a fed­er­al reg­u­la­tor has looked com­pre­hen­sive­ly at poten­tial dis­crim­i­na­tion in auto lend­ing. The agency was cre­at­ed by the 2010 Dodd-Frank finan­cial law and has the pow­er to penal­ize lend­ing com­pa­nies that vio­late fair-lend­ing laws.

The con­sumer reg­u­la­tor said lenders should con­sid­er elim­i­nat­ing the inter­est-rate markups and instead use a flat-fee sys­tem for orig­i­nat­ing loans. The agency said com­pa­nies should also vol­un­tar­i­ly mon­i­tor the impact of lend­ing poli­cies on minori­ties. It stopped short of propos­ing a com­pre­hen­sive set of new rules.

CFPB direc­tor Richard Cor­day said that , and the bul­letin was intend­ed to pro­vide guid­ance to indi­rect auto lenders with­in the CFPB’s juris­dic­tion on how to address fair lend­ing risk

Cor­dray not­ed the guid­ance applies to all indi­rect auto lenders with­in the juris­dic­tion of the CFPB, includ­ing both depos­i­to­ry insti­tu­tions and non­bank insti­tu­tions.

For more infor­ma­tion, please vis­it the Con­sumer Finan­cial Pro­tec­tion Bureau web­site and check out the arti­cles cit­ed above.



    Leave a Reply

    Your email address will not be published. Required field are marked *.