The Consumer Financial Protection Bureau is purportedly engaged in at least six fair lending actions against auto finance companies, a source with knowledge of the regulatory actions told Auto Finance News.
CFPB officials declined comment.
The source, a senior industry attorney whose practice is focused on auto finance, told AFN that he knows of six companies in CFPB enforcement actions. Three of the companies are banks; three are nonbanks. All are what would be considered “large” auto finance companies, the lawyer said.
The three banks will settle, regardless of the facts of the charges of fair lending violations, the source said. Regulators simply have too much leverage over banks today. Auto Finance News presumes that the settlements will be in the ballpark of Ally Financial Inc.’s $92 million settlement in December 2013. (Industry sources say they understand that Ally’s penalty would likely have been higher had Ally not cultivated a cordial relationship with CFPB officials.)
Along those lines, fifth Third Bank revealed in a 10-Q filing that it is under investigation by the department of Justice for alleged discriminatory practices in connection with its indirect automobile loan portfolio. Although the CFPB is not mentioned in the filing, the agency was likely involved in the investigation.
It is unclear what will be the result of the regulatory actions against the nonbanks — presumably captive finance companies. Regulators have a weaker hand against nonbanks, for the time being. There are fewer reciprocal actions that regulators can take through bank regulators against nonbanks, as compared to companies with bank charters, such as Ally. However, with the CFPB considering auto loan-making that creates as little as 20 basis points of disparate impact on a protected class of borrowers a fair lending violation,it seems more likely than not that the three nonbanks will also settle, rather than fight civil actions in federal court. The reason: such cases create long-term financial damage from lawsuit-related headlines that echo in the media over a long period of time. A settlement is a one-and-done resolution, regardless of whether there is disparate impact in the lender’s portfolio.