Regulators are stepping up efforts to rein in practices they deem predatory, warned Andrew Sandler, a partner at Buckley Sandler LLP, to a room of auto financiers at the Consumer Bankers Association conference yesterday.
The Department of Justice established a Fair Lending Enforcement Unit in January, and Attorney General Eric Holder has made fair lending enforcement a top priority.
“This is going to be the 800-pound gorilla for the industry,” Sandler said.
The issue is one of disparate impact. That is, the allegation that a practice that is facially neutral, but in operation has a discriminatory impact on a prohibited basis. In a nutshell, even if lenders have consistent policies about rate markups, if a sampling of their deals shows that certain populations of individuals have higher rates, lenders could be at fault.
What can lenders do to protect themselves? Sandler offered these tips:
• For one thing, make sure you’re educating and training your dealer-partners about the importance of treating people fairly.
• Beef up efforts to resolve consumer complaints.
• Document your process for analyzing risk. Know why certain risks warrant higher rates.
• To the extent you’re charging people more, be sure their risk is higher. Ultimately, lenders are held responsible for the conduct of their dealers.
• Do some portfolio analysis of your own. The rule of thumb: “Fix it first, then test the fix,” Sandler cautioned. “Don’t do testing to tell yourself you have a problem you know you have. Fix it first.”
