Auto Finance News
  • Home
  • News
  • Features
  • Events
    • Auto Finance Summit East
    • Equipment Finance Connect
    • Auto Finance Summit
    • PowerSports Finance Summit
  • Webinar
    • Harnessing AI & Machine Learning to Address Vehicle Affordability Issues
    • Webinar Library
  • Podcast
  • Powersports
  • Big Wheels Data

No products in the cart.

Subscribe
  • Capital & Funding
  • Compliance
  • Risk
  • Technology
  • Best Practices
  • Compliance Monitor
Log In
No Result
View All Result
Auto Finance News
  • Home
  • News
  • Features
  • Events
    • Auto Finance Summit East
    • Equipment Finance Connect
    • Auto Finance Summit
    • PowerSports Finance Summit
  • Webinar
    • Harnessing AI & Machine Learning to Address Vehicle Affordability Issues
    • Webinar Library
  • Podcast
  • Powersports
  • Big Wheels Data
BIG Wheels
Log In
No Result
View All Result
Auto Finance News
No Result
View All Result

Lenders Struggle with CFPB Auto Dealer Edicts

George YacikbyGeorge Yacik
April 9, 2014
in Compliance
Reading Time: 4 mins read
0

A year after the Consumer Finance Protection Bureau issued guidelines on discretionary loan pricing by automobile dealers, lenders who buy loans from them are still wrestling with the best ways to comply with that edict.

The main difficulty: Lenders are being required to act as a “policeman” over the actions of their dealer clients—who are not regulated by the CFPB—and risk alienating those relationships even if the dealers haven’t violated any fair lending laws.

In March 2013, the CFPB released a bulletin telling lenders who offer auto loans through dealerships that they are responsible for unlawful, discriminatory pricing that may result from dealer “discretion.” Indirect auto lenders often allow dealers the leeway to charge consumers a higher interest rate than the rate the lender gave the dealer, called the “dealer markup.” According to CFPB research, markup practices may lead to African Americans and Hispanics being charged higher markups than white consumers .

The bureau is taking the matter very seriously. Last December, the CFPB and the U.S. Department of Justice ordered Ally Financial Inc., the largest auto lender in the country, to pay $80 million in damages and $18 million in penalties for alleged violations of fair lending laws, the largest auto loan discrimination settlement in history. The agencies alleged that 235,000 black, Hispanic, and Asian borrowers paid higher interest rates for auto loans because of what they said were Ally’s discriminatory pricing system.

In its March 2013 bulletin, the CFPB recommended that auto lenders take steps to ensure that they are operating in compliance with fair lending laws as applied to dealer pricing, including imposing controls on dealer markups, monitoring their markup policies, and eliminating dealer discretion in pricing and replacing it with flat fees.

However, putting those recommendations into action is not as easy as the CFPB makes it sound. Indeed, lenders—and the attorneys who advise them—still aren’t sure what’s the best method of compliance while remaining on good terms with their dealers.

“It’s a little difficult to give precise guidance on exactly what dealerships should do,” says James M. Golden, a litigation and compliance attorney at the Dykema law firm in Los Angeles. “I think lenders are still having a tough time figuring out what to do. I don’t know that a lot of final decisions have been made.”

On the other hand, “If you sit on your hands and do nothing, I think you’re going to be worse off. Clients need to have a game plan,” he says.

Leonard N. Chanin, a partner at Morrison & Foerster in Washington, DC, agrees.

“A number of lenders are uncertain how to proceed, simply because it’s not clear what the best or compliant approaches are in terms of following the guidance,” he says. “People are still trying to figure out what the best approach is…(including) where they can continue to purchase loans (and) do so in a way that minimizes or tries to eliminate fair lending risk.”

The easiest way to comply is to follow the CFPB’s recommendation of eliminating dealer discretionary pricing outright and replacing it with a flat-fee structure. However, Golden says that would make both dealers and lenders unhappy. “We are seeing a lot of hesitation in doing that,” he says.

“Indirect financing is a big profit maker for the automotive companies; it’s a bigger profit maker than selling the automobiles, in my understanding,” he says. “There’s going to be a lot of resistance to making these kinds of changes. On the other hand, $98 million (the Ally fine) is a pretty big number.”

“You could eliminate discretionary pricing or try to contain it by going to a flat percentage or flat dollar amount, but then dealers are going to go to lenders who pay more, and you’re not solving the problem,” notes Chanin.

Monitoring dealer pricing behavior is another option recommended by the CFPB. In its December 20, 2013, statement on the CFPB-DOJ consent order, Ally said it was “enhancing dealer monitoring and reducing the perceived disparity for the protected classes outlined in the order.”

But that approach also has problems.

Chanin notes that unlike mortgage lenders, who are required by federal law to ask for the borrower’s race or ethnic identity, auto lenders are prohibited from doing so. In its statement, Ally notes that its “long-time process for evaluating auto installment contracts from dealers does not include information on a consumer’s race or ethnicity.” As a result, he believes lenders will have to “guesstimate” each customer’s race and ethnic group using a variety of information, such as surname, address and the like.

“Once you pass that hurdle—which is no small hurdle—then becomes the difficult task of what to do with that information,” he says. The dealer would then have to determine a reason for any discrepancy in rates. Besides, he says, “monitoring is always after the fact, and in that sense it’s already too late.”

“There’s a risk in finance companies becoming too much of a policeman, because finance companies are not dealers,” Golden says. Monitoring dealer pricing “is kind of a double-edged sword. You don’t want to make the case against yourself. If you go out and analyze the data and discover that there’s a problem, then what are you going to do? Are you going to cut off relations with that dealer? Are you going to change your compensation mechanisms just for this dealer? But if you don’t do anything, the CFPB will be on you, and if you get sued the plaintiffs’ lawyers are going to make a field day out of it.”

Golden says he is not aware if any of his lender clients are doing a lot of that analysis right now.

For now, Chanin says, “lenders are likely to adopt different approaches to try to figure out exactly how best to deal with the fair lending issues, but also to stay in the market.”

“I do think clients want to do the right thing. But there’s going to be a lot of pushback if they’re told to end dealer markups, because they don’t think they’re doing anything wrong, and I’m not sure they’re doing anything wrong, either,” Golden says. “But the CFPB is a true believer in this disparate impact theory, and the Ally settlement shows they’re taking this very seriously.”

-George Yacik


 

Tags: auto dealersauto lendingCFPBdisparate impactDOJ
Previous Post

Delinquencies Continue to Fall

Next Post

Lenders Struggle with CFPB Auto Dealer Edicts

Related Posts

TJ Villanueva, vice president and associate counsel at GM Financial, speaks at Auto Finance Summit East 2025.
Best Practices

3 words of compliance advice from GM Financial counsel 

May 21, 2025
(Courtesy/Auto Finance News)
Compliance

GM Financial, Husch Blackwell talk CFPB shift

May 15, 2025
CFPB sues TransUnion
Compliance

CFPB X account ‘doesn’t exist’ anymore

May 15, 2025
Next Post

Lenders Struggle with CFPB Auto Dealer Edicts

Please login to join discussion

Stay Informed with Our Newsletters

PowerSports Finance

The Roadmap Podcast

ABOUT US

HELP CENTER

ADVERTISE

PRIVACY TERMS

ADA COMPLIANCE

CODE OF JOURNALISM ETHICS

Manage Cookie Consent

EXECUTIVES OF THE YEAR

AUTO FINANCE EXCELLENCE AWARDS

MAGAZINE ARCHIVE

INDUSTRY GLOSSARY

facebook linkedin twitter podcast podcast
© 2025 Royal Media
No Result
View All Result
  • Home
  • News
    • All News
    • Capital & Funding
    • EVs
    • Technology
    • Management
    • Powersports Finance News
    • Risk Management
    • Sales & Marketing
  • Events
    • Auto Finance Summit East
    • Equipment Finance Connect
    • Auto Finance Summit
    • PowerSports Finance Summit
  • Features
    • Latest Issue
    • Features
    • New Tracks
    • Car Culture
    • Staffing Shuffles
    • Under The Hood
    • Spotlight
    • Issue Archive
  • Webinar
  • Podcast
  • Big Wheels Data
  • SUBSCRIBE
  • Log In / Account

Welcome Back!

Login to your account below

Forgotten Password?

Retrieve your password

Please enter your username or email address to reset your password.

Log In
No Result
View All Result
  • Home
  • News
    • All News
    • Capital & Funding
    • EVs
    • Technology
    • Management
    • Powersports Finance News
    • Risk Management
    • Sales & Marketing
  • Events
    • Auto Finance Summit East
    • Equipment Finance Connect
    • Auto Finance Summit
    • PowerSports Finance Summit
  • Features
    • Latest Issue
    • Features
    • New Tracks
    • Car Culture
    • Staffing Shuffles
    • Under The Hood
    • Spotlight
    • Issue Archive
  • Webinar
  • Podcast
  • Big Wheels Data
  • SUBSCRIBE
  • Log In / Account

THIS WEBSITE USES COOKIES

We use cookies on our website to give you the most relevant experience by remembering your preferences and repeat visits. By clicking “I CONSENT”, you consent to the use of ALL the cookies.

Cookie settingsI CONSENT

Review our Cookie Policies
.
Manage Cookie Consent

Privacy Overview

This website uses cookies to improve your experience while you navigate through the website. Out of these cookies, the cookies that are categorized as necessary are stored on your browser as they are essential for the working of basic functionalities of the website. We also use third-party cookies that help us analyze and understand how you use this website. These cookies will be stored in your browser only with your consent. You also have the option to opt-out of these cookies. But opting out of some of these cookies may have an effect on your browsing experience.
Necessary
Always Enabled
Necessary cookies are absolutely essential for the website to function properly. These cookies ensure basic functionalities and security features of the website, anonymously.
CookieDurationDescription
34f6831605sessionGeneral purpose platform session cookie, used by sites written in JSP. Usually used to maintain an anonymous user session by the server.
a64cedc0bfsessionGeneral purpose platform session cookie, used by sites written in JSP. Usually used to maintain an anonymous user session by the server.
CookieConsentPolicy1 yearUsed to apply end-user cookie consent preferences set by our client-side utility.
cookielawinfo-checkbox-advertisement1 yearSet by the GDPR Cookie Consent plugin, this cookie is used to record the user consent for the cookies in the "Advertisement" category .
cookielawinfo-checkbox-analytics11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Analytics".
cookielawinfo-checkbox-functional11 monthsThe cookie is set by GDPR cookie consent to record the user consent for the cookies in the category "Functional".
cookielawinfo-checkbox-necessary11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookies is used to store the user consent for the cookies in the category "Necessary".
cookielawinfo-checkbox-others11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Other.
cookielawinfo-checkbox-performance11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Performance".
crmcsrsessionGeneral purpose platform session cookie, used by sites written in JSP. Usually used to maintain an anonymous user session by the server.
JSESSIONIDsessionThe JSESSIONID cookie is used by New Relic to store a session identifier so that New Relic can monitor session counts for an application.
LS_CSRF_TOKENsessionCloudflare sets this cookie to track users’ activities across multiple websites. It expires once the browser is closed.
LSKey-c$CookieConsentPolicy1 yearUsed to apply end-user cookie consent preferences set by our client-side utility.
viewed_cookie_policy11 monthsThe cookie is set by the GDPR Cookie Consent plugin and is used to store whether or not user has consented to the use of cookies. It does not store any personal data.
Functional
Functional cookies help to perform certain functionalities like sharing the content of the website on social media platforms, collect feedbacks, and other third-party features.
CookieDurationDescription
__cf_bm30 minutesThis cookie, set by Cloudflare, is used to support Cloudflare Bot Management.
_zcsr_tmpsessionZoho sets this cookie for the login function on the website.
663a60c55dsessionThis cookie is related to Zoho (Customer Service) Chatbox
e188bc05fesessionThis cookie is set in relation to Zoho Campaigns
Performance
Performance cookies are used to understand and analyze the key performance indexes of the website which helps in delivering a better user experience for the visitors.
Analytics
Analytical cookies are used to understand how visitors interact with the website. These cookies help provide information on metrics the number of visitors, bounce rate, traffic source, etc.
CookieDurationDescription
_ga2 yearsThe _ga cookie, installed by Google Analytics, calculates visitor, session and campaign data and also keeps track of site usage for the site's analytics report. The cookie stores information anonymously and assigns a randomly generated number to recognize unique visitors.
_gid1 dayInstalled by Google Analytics, _gid cookie stores information on how visitors use a website, while also creating an analytics report of the website's performance. Some of the data that are collected include the number of visitors, their source, and the pages they visit anonymously.
CONSENT2 yearsYouTube sets this cookie via embedded youtube-videos and registers anonymous statistical data.
vuid2 yearsVimeo installs this cookie to collect tracking information by setting a unique ID to embed videos to the website.
Advertisement
Advertisement cookies are used to provide visitors with relevant ads and marketing campaigns. These cookies track visitors across websites and collect information to provide customized ads.
CookieDurationDescription
__Host-GAPS2 yearsThis cookie allows the website to identify a user and provide enhanced functionality and personalisation.
_dc_gtm_UA-1038974-31 minuteUsed to help identify the visitors by either age, gender, or interests by DoubleClick - Google Tag Manager.
_fbp3 monthsThis cookie is set by Facebook to display advertisements when either on Facebook or on a digital platform powered by Facebook advertising, after visiting the website.
fr3 monthsFacebook sets this cookie to show relevant advertisements to users by tracking user behaviour across the web, on sites that have Facebook pixel or Facebook social plugin.
test_cookie15 minutesThe test_cookie is set by doubleclick.net and is used to determine if the user's browser supports cookies.
VISITOR_INFO1_LIVE5 months 27 daysA cookie set by YouTube to measure bandwidth that determines whether the user gets the new or old player interface.
YSCsessionYSC cookie is set by Youtube and is used to track the views of embedded videos on Youtube pages.
yt-remote-connected-devicesneverYouTube sets this cookie to store the video preferences of the user using embedded YouTube video.
yt-remote-device-idneverYouTube sets this cookie to store the video preferences of the user using embedded YouTube video.
yt.innertube::nextIdneverThis cookie, set by YouTube, registers a unique ID to store data on what videos from YouTube the user has seen.
yt.innertube::requestsneverThis cookie, set by YouTube, registers a unique ID to store data on what videos from YouTube the user has seen.
Others
Other uncategorized cookies are those that are being analyzed and have not been classified into a category as yet.
CookieDurationDescription
caf_ipaddrsessionNo description available.
citysessionNo description available.
countrysessionNo description available.
gnt_eidsessionNo description available.
gnt_eu6 hoursNo description
iamcsrsessionZoho (Customer Support) sets this cookie and is used for tracking visitors (for performance purposes)
systemsessionNo description available.
traffic_targetsessionNo description available.
Save & Accept
Powered by CookieYes Logo