Ally Financial Inc. is under fire from the Consumer Financial Protection Bureau for allegedly taking inadequate steps to prevent auto dealers from violating laws against discriminatory lending, according to a regulatory filing Tuesday.
“The staff of the CFPB has recently advised us that they believe we have an obligation to prevent independent automotive dealers with which we do business from engaging in certain retail financing practices that the CFPB believes violate the anti-discrimination provisions of the Equal Credit Opportunity Act, and that we have failed to fulfill this obligation,” according to the 10-Q filing.
Ally had previously disclosed that the CFPB was investigating its retail financing practices. According to The Wall Street Journal, the added disclosure follows warnings by the CFPB that auto lenders will be held responsible for certain practices by dealerships.
A CFPB spokesman told Auto Finance News in an email statement that the bulletin the Bureau issued in March explained how the Equal Credit Opportunity Act (ECOA) applies to indirect auto lenders, and provided guidance on ways to limit fair lending risk. ECOA makes it illegal to discriminate in any aspect of a credit transaction on the basis of race, color, religion, national origin, sex, marital status, and age.
Earlier this week, Patrice Ficklin, Assistant Director of the CFPB’s Office of Fair Lending and Equal Opportunity, posted a blog to further explain the CFPB’s position.
Tom Hudson is a terrific representative to the BHPH and Independent Auto Dealers
Cody, below are several of the areas a Finance Source (FS) and or the CFPB will want to review when they look at the Dealers multiple Customer relationships, and their loan origination process. I have tried to bring these point home for a long time, and now there on every dealer and or their lenders door step.
1. Can the FS or the CFPB adequately understand both the policies and procedures a dealership is using, repeatedly when the dealer arranges financing for their customers?
2. Can the Customer and or the CFPB review each auto loan package with multiple lender offerings provided to the Customer in a side by side comparison, with full transparency and full disclosure of all cost and coverage’s? (If not all dealers and or lenders will not be compliant)
3. Can the FS or the CFPB review the criteria the dealer is using to place each of their customers in different risk classifications, assign pricing and finance or participation fees?
4. Also, how discretion for each loan’s risk is managed, monitored and documented?
5. Does the FS have a written agreement with the Auto Dealers that addresses Fair Lending along with their loan origination responsibilities?
This is not a complete list of what the FS and or the CFPB must be able to access and review on each and every sold or pending vehicle sale at the dealership. For the dealer to be in full compliance they must be able to disclose to the Customer, Multiple lenders offers with a full disclosure of all details of those offers in a side by side comparison of those offers. The Customer must have the ability to review all details of the offer, and then have the ability to make a selection from those offers for the lender(s) that are most probable to finance their auto loan package. When a dealer operates in this manner they will get their deals financed faster with less resistance from the Customer, the FS and or the CFPB, those that don’t comply will face major problems with their FS, and or potentially with the CFPB.
I saw this coming a long time ago and my company E-net Financial Services, Inc. built a program that will allow the dealer and or Financing Source comply to these new rules and regulations.
Bill Fowler
One must realize that indirect lenders and dealers are not intentionally discriminatory towards any class. Let’s face it, we are all happy to earn an honest profit from any class, whether they are a “protected class” under the ECOA or not. Right? And profits are good. Profits enable us to feed our families and create jobs. The problem arises when business practices resulted in disparate treatment. This is where Patrice Ficklin has it right. The CFPB issued guidance on how to comply. Expert legal direction is plentiful. Any lender not taking the suggested steps to be compliant and document their efforts are being careless.
And the argument “if the Gov’t enforces disparate treatment rules upon auto finance they might as well do the same thing on the price of the vehicle or any consumer good – there may be disparate treatment there”. That does not hold. There is no ECOA-like Reg for the purchase price of a car. But there is a law that governs equal treatment under for all when it comes to credit. I think we (the auto finance industry) needs to quit belly-aching and focus our efforts on complying with the Regulation, and helping our dealers do the same.
I agree Chass, and my company has developed the multiple areas a dealer and a lender must comply with to be in compliance with their requirements.
Be happy to demo this process to any qualified individuals associated with a dealership of financing source.
Bill
Just thinking out loud here: Might the CFPB start to require HMDA-type data rather than rely on proxies?
Marcie, I assume your addressing Home Mortgage Disclosure Actions?
That’s an excellent point.
Dealers need to have available at almost any time all the information they gathered and the Actions Taken During the sales presentation and sale.
The settlement or closing date for originations. For applications that did not result in an origination, the date when the action was taken or when the notice was sent to the applicant is entered. For an application that was expressly withdrawn by the applicant, either the date shown on the applicant’s letter or the date you received the letter or notice is reported. For loans that an institution purchased, the date of purchase is entered.
Action Taken Type
The disposition of the loan/application, etc.
While all of this data could never be collected in a loan origination process my company has developed a large amount of this type of data is collected and stored on line in a safe secured Internet location.
Good catch Marcie. If you would like a demo let me know.