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Industry Groups Question Study on Discrimination in Auto Lending

January 30, 2014

DURHAM, N.C. — The Center for Responsible Lending (CRL) released findings last week that show negotiation does not help African American and Latino car buyers secure better interest rates on auto loans. However, industry associations such as the American Financial Services Association (AFSA) and the National Automobile Dealers Association (NADA) have discounted the study, claiming it lacks data to support its claims.

According to the study, 39% of Latinos and 32% of African Americans reported making attempts to negotiate their interest rate, compared to only 22% of white respondents — yet minority buyers received higher interest rates. The report, “Non-Negotiable: Negotiation Doesn’t Help African Americans and Latinos on Dealer-Financed Car Loans,” is based on a telephone survey of 946 consumers conducted in October 2012.

"The CRL report is based on a sample size of less than 900 borrowers self-reporting that they purchased a vehicle at a dealership in the last six years,” said Chris Stinebert, president and CEO of the AFSA, in a statement, who noted that 86 of the 946 car buyers polled received loans from buy-here, pay-here dealerships.

“In 2013, 15.6 million new and nearly 42 million used vehicles were sold in the United States, hardly making this a representative sample,” Stinebert added. “The report author even notes that ‘using self-reported survey data has limitations compared to loan-level data derived from the records of individual transactions.’”

The AFSA will be conducting its own study over the next several months, examining loan-level data of millions of loans, Stinebert noted. The intent of the study is to evaluate the indirect lending model and analyze the costs and benefits of alternatives.

The CRL study was discussed at the Consumer Financial Protection Bureau (CFPB)’s first public forum on auto lending. It was held in November at the bureau’s headquarters in Washington, D.C. Chris Kukla, senior counsel for government affairs at the CRL, said the study would show that disparities do exist in the auto lending market, and that those disparities are not mitigated by shopping around or negotiation, something CFPB officials have been claiming since the bureau issued a fair lending bulletin in March.

However, CFPB officials have also stated that the bureau is relying on data collection techniques employed by its sister agencies like the Department of Justice, an approach designed to allow finance sources to replicate it on their own.

“The CFPB repeatedly stated — even as recently as our Vehicle Finance Conference last week — that the bureau is only interested in data-driven studies,” Stinebert said. “The CRL study certainly does not fall into that category.”

The National Automobile Dealers Association (NADA) also issued a statement that questions the results of the CRL study. “The phone survey responses are consumer opinions, not statistically valid data,” read the statement. “For example, the report relies on participants to recall details such as ‘trade-in allowance’ and ‘down payment’ for transactions that occurred as long ago as ‘six years.’ If the survey participant didn’t recall the answer, the survey accepted ‘their best guess.’”

“If anything, CRL’s report shows that if all consumers lose their right to negotiate for lower monthly payments, minorities would disproportionally pay the price.”

Comments

  1. 1. howell clark [ January 31, 2014 @ 03:36PM ]

    well when they get turned down the next time because banks will no longer loan to any marginal buyers because the new requirements that anyone qiven a loan gets the same rate as someone who has excellent credit , what are they going to say. my banks have already pulled back on lending just because of these rules and lawsuits coming down lately. idiot well intended folks like the center for responsible lending have no clue what harm they are doing not only to folks in the industry trying to help folks with their transportation needs and the very folks they are trying to protect. subprime lenders are going to have a field day soon.

 

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