On June 20, 35 House Republicans sent a letter to the Consumer Financial Protection Bureau questioning its methodology in creating a recent guidance regarding indirect auto finance and how it analyzed possible fair lending infringements.
On Aug. 2, the CFPB responded — without really answering the GOP’s questions.
In the June letter, Republicans challenged the CFPB for starting procedures without “a public hearing, without public comment, and without releasing the data, methodology, or analysis it relied upon to support such an important change in policy.” They also demanded that the bureau deliver all of the studies, exams, and information it used to create the guidance bulletin.
While a copy of the CFPB’s reply to the Republicans could not be obtained at the time of this writing, the CFPB Monitor blog of law firm Ballard Spahr reported that the bureau said that the Administrative Procedure Act “does not mandate notice and comment for general statements of policy, non-binding informational guidelines, and interpretive memoranda,” which is why it issued the indirect auto lending guidance without public involvement.
As for its disparate impact methodology and how it concludes that an Equal Credit Opportunity Act violation has taken place, the agency cited already-public methods such as surname and geographic proxies. The CFPB did not offer further details on the specific analysis it did on the indirect auto lending matter or how much of a disparity must be reported for an ECOA infringement to be decided, aside from saying that the exam must show that such disparity was “statistically significant.”
The agency also told Republicans that each regulatory investigation or enforcement exam “is based on the particular facts presented,” and it takes into consideration the controls in place for each situation to be “open to hearing specific explanations for the decisions [indirect auto finance companies] have made to include particular analytical controls that reflect a legitimate business need.”
However, the agency did not relate what it considers a “legitimate business need,” which leaves unanswered the question of how to recognize and thwart ECOA violations in a manner that lets lenders stay competitive.
Much of this could be solved if banks would define “predatory lending” for their internal policy. I have asked a number of them to do so and each one states “We do not want to do so”. Therefore, banks are getting what they deserve from the CFPB.
They do not want to do so because it appears they are choosing to push the envelope of “taking advantage of prospective customers and/or prospective customer abuse as much as possible”.
Does any banker reading this have a written policy on what is “consumer loan predatory lending”? If yes, now is the time to speak. I am not talking about the Federal Government real estate loan definition of predatory lending which only applies to real estate.
Here’s a copy of the CFPB’s response.
So far, no banker has responded to my challenge above.
Then Marcie Belles is kind and shows how the CFPB makes my point. Read their letter. Other than the proxy sampling process, everything else is pretty basic. Really good credit administrators would not need the CFPB to tell them what to do. But too many banks appear to not want to be leaders. By not defining predatory lending, they can “push the envelope” to try to make a few more dollars and then design a program around the “loopholes” that the CFPB missed on their first pass. Does that sound honorable and responsible to anyone? Where is the CBA on this? Still trying to minimize the regulatory damage instead of working on self-regulatory leadership?
Within many commercial banks, the path to be a top credit administrator seldom runs through managing the indirect lending portfolio unless it is a short stop in part of a planned short-term executive level training program. How many CEO’s of the top 100 banks came up through indirect lending with significant time in that area? Yet it is a big portfolio and requires high level executive leadership. It is not a step-child to the top of the credit mountain “commercial loan credit administrators and investment bankers” although many of those people would act like it is a “step-child” at a bank (not a captive finance company). So the CFPB has to step in to “protect” consumers from willful abuse or abuse from not quite competent consumer credit administrators. Sad!