As the industry returns to the standard 200- to 250-basis-point cap on dealer markup, three lenders are bound to old consent orders with lower caps that put them at a competitive disadvantage, lawyers told Auto Finance News.
Fifth Third Bank, Toyota Financial Services, and American Honda Finance Corp. face a 125-basis-point markup cap based on Consumer Financial Protection Bureau consent orders back in 2015 and 2016. The orders alleged that the lenders had a disparate impact on minority communities that were charged higher interest rates at the dealership than their white counterparts of equal creditworthiness.
To fix the disparity, the CFPB placed lower caps on the lenders and encouraged others to follow by example. However, under new leadership, the CFPB has stripped enforcement power from the Office of Fair Lending and Equal Opportunity.
“I don’t expect folks will stick to [the CFPB’s standard],” Michael Benoit, partner at Hudson Cook LLP, told AFN. “As long as there are finance sources out there willing to offer 200 to 250 basis points, the industry is naturally going to revert back to that standard.”
Per the terms of the consent orders, Fifth Third, Toyota, and Honda don’t have the option to raise those rates until later this year, 2019, and 2020, respectively.
“We continue to focus on compliance, regardless of organizational changes at the CFPB,” a TFS spokesman told AFN. “We revise our compliance policies when changes to laws and regulations require revisions to our policies.”
Fifth Third declined to comment, while Honda did not respond to a request for comment.
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