There’s no easing up at the Consumer Financial Protection Bureau, not when it comes to auto finance at least.
A close reading of the 2014 annual fair lending report released last week by the CFPB shows the government agency is continuing its focus on auto finance, particularly prescient as we head into the final couple of weeks before the May 18 start of the Auto Finance Risk & Compliance Summit, the industry’s only event dedicated to these crucial disciplines.
The CFPB indicates in the annual report that “mortgage lending and auto finance will continue to be a focus for the Bureau and key priorities for the Office of Fair Lending.” That auto finance is lumped in with mortgage lending should tell you enough.
The report, a 57-page overview of the CFPB’s 2014 efforts, offers a look at what the agency sees as appropriate practice from an auto lender, including the need for lenders “to monitor and, if necessary, correct [fair lending] disparities through a strong compliance management system.”
But the CFPB also took to task critics of its analysis of discretionary markup, defending its lender-by-lender data work. Here’s what the CFPB said:
Industry feedback on the Bureau’s white paper also urged the Bureau to incorporate controls into our analyses of discretionary markup based on broad (and, to our knowledge, untested) assumptions about the auto lending market and lending practices, in order to explain disparities identified when comparing the interest rates paid by similarly-situated minority and non-minority consumers. Because the Bureau takes a data-driven approach to its work that is tailored to specific lenders’ policies, it would not be appropriate simply to adopt such controls as a wholesale matter and apply them to loan data without particularizing them for context. Given the requirements of the law, we must instead evaluate the relevance of any proposed controls on a lender-by-lender basis to determine whether they are legitimate and are actually incorporated into the lender’s decisions about discretionary markup of interest rates on auto loans.
As the Bureau has previously observed, many of the proposed controls are not appropriate when analyzing disparities in discretionary markup because the lender’s underwriting and pricing systems may have already considered risk-based factors related to creditworthiness, the characteristics of the collateral, and the terms of the transaction. Taking these factors into consideration again, for a second time, would be generally improper and would have the effect of artificially reducing the appearance of disparities and obscuring potential discrimination.
The CFPB also disclosed that “Ally has also begun the process of sending refunds to affected borrowers who financed car purchases after December 2013,” when the CFPB and Ally entered into a settlement over alleged fair lending violations. The agency maintains that it and the Department of Justice “have been overseeing Ally’s adoption of a robust compliance plan that includes monitoring lending by automobile dealers for discrimination, taking corrective action in response to evidence of discrimination, and providing relief to minority borrowers if disparities persist.”
Dan Soto, chief compliance officer at Ally Financial, will deliver the Keynote Address at the 2015 Auto Finance Risk & Compliance Summit.
Taken in sum, it is clear that the CFPB still sees auto finance as a regulatory enforcement priority — which is likely why the ratio of lenders to vendors at AFRCS is the highest we have ever seen at any of our industry events. The level of lender interest in AFRCS is pronounced, and no doubt the CFPB can be “blamed” for that.
More details on the Auto Finance Risk & Compliance Summit, May 18-19 in San Diego, can be found at www.afrcs.com.
