Uncertainty on auto lending rules resulting from the Consumer Financial Protection Bureau’s methodology behind consent orders issued to lenders found overcharging or otherwise misleading minority borrowers has prompted calls from the National Automobile Dealers Association and the House Financial Services Committee for a detailed explanation from the bureau on said methodology.
Automotive News reports complaints made by NADA, the U.S. Chamber of Commerce, the auto finance industry and Congress regarding the CFPB’s enforcement of consumer protections, all citing a lack of clarity behind the enforcement, as NADA general counsel Andy Koblenz explained during a panel discussion at a conference held this week by the U.S. Chamber:
It’s almost like the cop standing by the side of the road, pulling people over for speeding. Someone says, “OK, I want to comply. What’s the speed limit?” And they say, “I’m not going to tell you. After the fact, I’ll look back and I’ll tell you whether you were speeding.” That’s not fair, and it’s ultimately going to drive credit out of the market.
In 2013, the bureau issued guidance upon findings of dealerships charging minority consumers higher dealer reserve than other similar borrowers, proclaiming the action a “disparate impact,” and thus, illegal discrimination.
The specific charge prompted the House Financial Services Committee to send a letter to CFPB director Richard Cordray requesting a thorough explanation on the bureau’s methodology for determining an occurrence of disparate impact, with answers due no later than March 13; the deadline passed with no response, and a subpoena may soon follow.
In defense, CFPB deputy director Steve Antonakes said the bureau has, and intends to use in full, five regulatory tools in fighting disparate impacts: rulemaking; consumer complaints; supervision and examination; enforcement; and consumer education. Further, the bureau itself has said in the past it has used proxies in determining legally protected classes in lending.
However, Capital One chief counsel Andy Navarette — whose employer refunded $140 million for alleged misleading marketing involving product add-ons for credit cards after the bureau issued a consent order to the lender — would like to see the CFPB make “a broader use of the rulemaking tool” in future decisions related to auto lending:
You have 5,000 auto lenders in this country. Tackling individual institutions via supervision or enforcement may change behaviors at those individual companies. But it’s not going to move markets in a way that actually produces consistent rules of the road for the industry.