The Consumer Financial Protection Bureau and the Department of Justice are probing the lending operations of some of the nation’s largest captive finance companies for possible lending discrimination, according to a Bloomberg report.
The report cited a Sept. 13 regulatory filing by Toyota Motor Credit Corp. and an Aug. 19 filing by American Honda Finance Corp. that said the federal agencies sought information related to possible violations of the 1974 Equal Credit Opportunity Act, which bars discriminatory lending. AHFC’s filing added that enforcement action is possible: “Although neither the CFPB nor the U.S. Department of Justice has alleged any wrongdoing on our part, we cannot predict the outcome of the inquiry.”
As many as five other captives have received similar requests for data that may be related to borrowers’ racial backgrounds, according to Bloomberg. A CFPB spokesman declined to comment on the investigation.
In February, at least four banks were told by the CFPB that they may be sued over seemingly discriminatory vehicle loans and interest-rate markups from auto dealers.
I agree with JJ. It’s definitely the right time to get in. Prime has always had a very narrow margin of profit, thus prompting banks to exit at odd times but subprime has a more acceptable profit margin if managed correctly. I, too, congratulate California Republic Bank and Car Finance for jumping in now. The Prescher and Landy teams will do well as always.
The sooner someone hauls the CFPB into court, the better. They will lose on “disparate impact,” but no one wants to take the chance. Even the CFPB knows they will lose. I think they will go as far as their saber rattling and bluffing will take them.
I’m all for meaningful regulation but this is a ridiculous waste of resources. There are market forces at work to prevent rate gouging. First, consumers are free to shop. Second, there are companies who make a good living out of refinancing consumers who are paying well over a market rate. Those consumers are unlikely to ever visit the dealership that “gouged” them again. Dealers with any common sense will self police.
David-
I believe that the CFPB is here to stay- the potential for liability is significant if the dealer hasn’t enforced procedures that mandate proper disclosures “during” the sale process not just in F&I. Implement a process that supports a solid paper trail that deters any indication that the dealer is hiding or purposely concealing information such as 4 squares and buyers orders that are not completed prior to finance or better yet… defining the procedure prior to obtaining customer credit information or when to pull the OFAC or what about spot deliveries?
My workshop, Closing Tools F&I Mastering Menu Sales is on October 9th-11th– Chattanooga,TN! The workshop has been designed for the beginner or advanced F&I Manager. We’ll cover compliance and discuss how to engage with the customer sooner in the process and develop a sure fire methods to minimize the customers natural urge to resist product offerings as well as reducing liability and building a customer for life! Please feel free to contact me for details at 404-276-4026!
The theory of “disparate impact” emerged first in the field of employment during the 1970s. It has since gained popularity among financial regulators, where the idea creates vast potential for falling foul of the rules. “Unless income, assets and credit performance are equally distributed among all racial and ethnic groups, any approach based on something even as basic as a credit score will produce a disparate impact,” says Thomas Noto of Morrison & Foerster, a law firm. Rather than risk litigation based on this theory, many large banks paid large settlements in cases tied to housing-lending fees and policies (and emphatically denied discrimination at the same time).
That outcome is widely expected if the case is heard in the autumn: the idea of disparate impact goes beyond the language in the Fair Housing Act itself, as passed by Congress. But the court may yet be bypassed: there are reports that a financial settlement is being negotiated with the residents. Those seeking an end to the use of disparate impact, or even a clearer sense of how it is defined, may have to wait for a new administration.
Unfortunately for an industry eager to have the court address this important issue, a settlement in Mount Holly appears imminent. According to local press reports, the remaining Gardens residents have offered to settle for $1.2 million, and the parties are engaged in active settlement talks with a magistrate judge.(1) Perhaps the third time the court takes up the issue, it will finally have an opportunity to reach a decision. I smell a sellout!
By the way I have build a Loan Origination System that will allow dealers and lenders to comply to the new CFPB rules and regulations. If you want to learn more just contact me.