The recent American Honda Financial Corp. consent order from the Consumer Financial Protection Bureau and a U.S. Supreme Court decision on “disparate impact” offer potential arguments for auto lenders in future cases, said attorneys in a recent webinar.
For instance, the Honda Finance consent order last month showed that the CFPB would tolerate dealer markups, said Nick Smyth, an attorney for the Washington, D.C., office of Reed Smith, a law firm whose clients include lenders. The order imposed lower ceilings on markup but didn’t completely eliminate it.
Smyth also told Auto Finance News last week that in a footnote in the consent order, the CFPB for the first time said it would allow lenders to offer a lower buy rate in certain circumstances, such as for customer loyalty programs, or for competitive reasons such as to meet a competing offer.
Separately, the U.S. Supreme Court in June upheld the disparate impact theory in a housing discrimination case. The auto finance industry would have preferred to see the decision go the other way, but the specific language of the decision wasn’t all bad from the industry point of view, said Tyree Jones, a Reed Smith partner.
For instance, Jones said in the July 30 webinar the decision could mean regulators must prove a “robust” cause-and-effect relationship between lender policies and discrimination.
The CFPB argues the disparate impact theory means only the end result matters. That is, if legally protected classes pay higher rates, that qualifies as discrimination, even if the result is unintentional.
