J.P. Morgan Latest Lender to Reveal DOJ Scrutiny

Mag GlassJ.P. Morgan Chase & Co. is working with the Department of Justice to determine if there is evidence of disparate impact on auto loans in its portfolio, according to the company’s annual 10-K filed with the Securities and Exchange Commission yesterday.

“The Firm is engaged in discussions with the U.S. Department of Justice (‘DOJ’) about potential statistical disparities in markups charged to different races and ethnicities by automobile dealers on loans originated by those dealers and purchased by the Firm,” the company wrote in the filing.

J.P. Morgan Chase is the latest company to reveal it has had communication with the DOJ regarding its auto lending practices. Toyota Motor Credit Co., American Honda Finance Corp., Credit Acceptance Corp., and Ally Financial Inc., all revealed they had received either letters or subpoenas from the DOJ in December 2014, and Consumer Portfolio Services was the first company to be subpoenaed in 2015, it revealed in late January.

The Consumer Financial Protection Bureau has also been vocal about making oversight of auto finance a priority. The bureau is currently “moving forward” with its proposed Larger Participant rule that will give the bureau supervisory oversight over larger nonbank auto finance companies, Director Richard Cordray confirmed while speaking at the National Association of Attorneys General Annual Winter Meeting on Monday. Cordray also confirmed that “several supervised institutions” are paying settlements for lending practices that were found to have led to discrimination.

“In addition, the Bureau has focused significant resources on rooting out discrimination in indirect auto lending,” Cordray said. “Examination and enforcement teams have reached resolutions to address practices that resulted in discrimination at several supervised institutions, which collectively are paying out approximately $136 million to provide redress for up to 425,000 consumers who were discriminated against on the basis of race.”

Most dealers are currently exempt from CFPB supervision and enforcement, former Congressman Barney Frank, who co-authored of the Dodd-Frank Wall Street Reform Act, said during his keynote address at ABS Vegas 2015, the Structured Finance Conference in early February. This led some in the industry to speculate that dealer exemption “has forced the bureau to handle suspected dealer misconduct in a roundabout way: by addressing those, such as banks, that fund dealers or otherwise engage in business with them,” according to a published report on the conference.

Susan Sheffield, executive vice president and treasurer at General Motors Financial Co., said during the conference that the captive is preparing for when the CFPB extends oversight to auto dealers. “It’s clear they don’t like having auto dealers as part of the [loan] process,” she said. “We fully expect that once a larger participant rule is confirmed, they’ll be in to visit us in 2015.”

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