On June 20, 35 House Republicans sent a letter to the Consumer Financial Protection Bureau questioning its methodology in creating a recent guidance regarding indirect auto finance and how it analyzed possible fair lending infringements.
On Aug. 2, the CFPB responded — without really answering the GOP’s questions.
In the June letter, Republicans challenged the CFPB for starting procedures without “a public hearing, without public comment, and without releasing the data, methodology, or analysis it relied upon to support such an important change in policy.” They also demanded that the bureau deliver all of the studies, exams, and information it used to create the guidance bulletin.
While a copy of the CFPB’s reply to the Republicans could not be obtained at the time of this writing, the CFPB Monitor blog of law firm Ballard Spahr reported that the bureau said that the Administrative Procedure Act “does not mandate notice and comment for general statements of policy, non-binding informational guidelines, and interpretive memoranda,” which is why it issued the indirect auto lending guidance without public involvement.
As for its disparate impact methodology and how it concludes that an Equal Credit Opportunity Act violation has taken place, the agency cited already-public methods such as surname and geographic proxies. The CFPB did not offer further details on the specific analysis it did on the indirect auto lending matter or how much of a disparity must be reported for an ECOA infringement to be decided, aside from saying that the exam must show that such disparity was “statistically significant.”
The agency also told Republicans that each regulatory investigation or enforcement exam “is based on the particular facts presented,” and it takes into consideration the controls in place for each situation to be “open to hearing specific explanations for the decisions [indirect auto finance companies] have made to include particular analytical controls that reflect a legitimate business need.”
However, the agency did not relate what it considers a “legitimate business need,” which leaves unanswered the question of how to recognize and thwart ECOA violations in a manner that lets lenders stay competitive.
