The move took place April 24 and affects the dealers in the bank’s 25-state footprint. The news was first reported by Automotive News‘s Jim Henry.
At stake is how dealers are compensated for arranging auto loans. BMO Harris’s new flat fee is 3% of the amount financed up to a maximum payout of $2,000. Only loans with terms of at least 36 months are affected; for shorter loans, dealers receive no compensation.
The dealer reserve is the amount of interest a dealer is allowed to add to a loan in exchange for facilitating the deal. The Consumer Financial Protection Bureau has taken an interest in dealer reserves and says the practice results in minorities and other classes of borrowers being charged higher rates.
CFPB director Richard Cordray issued a statement yesterday regarding the bank’s actions. “It is encouraging to see BMO Harris taking this proactive step to protect consumers from discrimination,” Cordray said. “When people go to buy a car, they should not have to worry whether they’ll pay more for their auto loan because of their race, gender, or ethnic background. The CFPB is committed to creating a fair marketplace for all consumers, and we recognize that many lenders share that commitment as well.”
BMO Harris says complying with CFPB guidelines was not the motivating factor in this decision. It was instead done in the interest of “enhanced transparency for the consumer on the cost of their financing,” according to spokesman Patrick O’Herlihy.