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CFPB Blog Puts Auto Lenders On Notice

April 26, 2012

WASHINGTON – In a recent blog post on the Consumer Financial Protection Bureau (CFPB) website, the Assistant Director for the Office of Fair Lending and Equal Opportunity, Patrice Ficklin, said the agency will be paying more attention to non-mortgage loans, and specifically called out auto loans.

The post says the CFBP is looking for signs of illegal discrimination. The post, titled “Fair Notice On Fair Lending,” states that under the Equal Credit Opportunity Act (ECOA), it’s against the law for a creditor to discriminate against an individual because he or she receives public assistance income or exercises any rights under the Consumer Credit Protection Act. This is in addition to any kind of discrimination based on race, color, religion, national origin, sex, marital status, or age (assuming the individual is old enough to legally enter into contracts).

“Today we are giving fair notice on fair lending,” Ficklin wrote, in part. “We are letting both lenders and consumers know that in our examination and enforcement work, we will combat unlawful, discriminatory practices — including those that have an illegal disparate impact on protected borrowers. We will look not only at mortgage lending, but also at other types of credit including student loans, loans for cars, and credit cards.”

Blair Rugh, a banking law expert and head of TriComply, a lender technology provider, commented on the blog post in his company's 2012 TriComply Compliance Conference Bulletin. Critical of her background, he described Ficklin as a “Harvard-educated attorney” who worked most recently with a civil rights law firm. He added that she worked at Fannie Mae, where her work involved fair lending, fair housing, consumer law advice, and employment issues.

“Based on her background, it is a pretty safe presumption that she has a predetermined bias against lenders,” Rugh said.

He also said any lending practice that has more of a negative effect on moderate- to low-income individuals can be deemed illegal by the CFPB due to the greater percentage of “protected class” individuals in those income brackets.

One type of lending that’s been in the crosshairs of various state legislatures and agencies is the buy here, pay here segment, which the CFPB also is paying close attention to. After an LA Times news story came out about BHPH dealers last fall, the bureau’s Director Richard Cordray said the organization would look into the practices of BHPH dealers. That story also prompted California legislators to introduce three new bills to regulate the segment.

The legislation is quickly making its way through that state’s legislature. For example, state Senator Ted Lieu (D-Torrance, Calif.)'s S.B. 956, which would cap auto loan rates at 17.5 percent, was passed by a 3-2 vote by the Senate Judiciary Committee on April 24. The bill now heads to the Senate Appropriations Committee.

The second bill, AB 1447, which was introduced in January by California Assembly Member Mike Feuer (D-Los Angeles), was passed by a 8-2 vote in the Assembly Judiciary Committee on the same day. It now heads to  Assembly Appropriations Committee. If passed, the bill would prohibit dealers from installing payment assurance devices, among other mandates. The third bill , championed by Assembly Member Bob Wieckowski (D-Fremont), also passed by 6-3 committee vote in the Assembly Judiciary Committee and also heads to the Assembly Appropriations Committee.

The BHPH market in California achieved $16.5 million in gross sales and moved 2.5 million units, according to CNW in its April newsletter.

Although California is a hot spot for legislation related to the lending practices of BHPH dealers, it’s not the only state taking a hard look at hte practives of BHPH dealers. In Ohio, the state’s Attorney General Mike DeWine filed lawsuits against two car dealerships that charge the dealers and their owners with multiple violations.

In response to the heightened scrutiny dealers, in general, are under, TriComply’s Rugh said every institution should review its lending practices and prove that they don’t have any adverse impact on consumers.

“When you hear the tornado sirens go off, that means you should take shelter,” said TriComply’s Rugh.

By Greg Basich

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