The Consumer Financial Protection Bureau and the U.S. Department of Justice could be close to announcing consent orders with the three biggest Japanese-brand captive finance companies, American Honda Finance Corp., Toyota Motor Credit Corp. and Nissan Motor Acceptance Corp.
The consent orders potentially represent millions of dollars in refunds, and according to a report in the American Banker trade paper this week, the captives could agree to lower ceilings on dealer markup to settle discrimination charges.
All three companies acknowledged to Auto Finance News on Wednesday that they were the subject of investigations by the CFPB, but wouldn’t comment further. Nor would the CFPB comment, except to imply it was looking into who leaked confidential documents.
“Our enforcement process is confidential and we take any breach of that confidentiality very seriously. We are referring this matter to the Office of the Inspector General for further investigation and will cooperate fully,” said CFPB spokeswoman Jen Howard.
The captives for Honda and Toyota had previously disclosed in filings with the Securities and Exchange Commission, in late 2014, that they were in negotiations with regulators as a result of investigations into discrimination in loan pricing.
NMAC said in an SEC filing in April that it was “subject to” an investigation by the CFPB and the DOJ, “to determine whether NMAC engaged in any discriminatory practices in connection with its indirect automobile loan portfolio,” but NMAC had not disclosed the same level of detail as the other two.
Travis Parman, a spokesman for Nissan North America and the captive finance company, told Auto Finance News in an email on Wednesday, “While we are in preliminary discussions with the CFPB, we are confident that we are acting in the best interest of customers. The discussions are exploratory in nature as we work to protect our customers’ ability to choose financing options that fit their specific needs and to negotiate the best rates possible.”
Meanwhile Honda Finance said late last year, “AHFC has also been informed that the Agencies may defer pursuit of this litigation if AHFC works with the Agencies to seek a voluntary resolution to these allegations.” TMCC made a nearly identical statement in an SEC filing last year.
According to the American Banker report, lower ceilings on dealer markup are part of proposed settlements.
The CFPB’s preferred choice is to get lenders to switch from dealer markup to flat fees or some other form of “non-discretionary” dealer compensation. However, the CFPB hinted pretty strongly in a September 2014 summary of its enforcement actions that a lower ceiling on dealer reserve, or dealer markup, of 1% or less reduces the risk of discrimination, as defined by the CFPB.
Most lenders have adopted ceilings of 2 or 3%, depending on the term, as a result of earlier discrimination cases from the late 1990s and early 2000s.