WASHINGTON — Lenders that offer auto loans through dealerships will be held responsible for unlawful, discriminatory pricing, according to a bulletin issued today by the Consumer Financial Protection Bureau (CFPB).
The bulletin is intended to provide guidance to indirect auto lenders within the CFPB’s jurisdiction on how to address fair lending risk. The agency claims potentially discriminatory markups in auto lending may result in tens of millions of dollars in consumer harm each year.
“Consumers should not have to pay more for a car loan simply based on their race,” said CFPB Director Richard Cordray. “Today’s bulletin clarifies our authority to pursue auto lenders whose policies harm consumers through unlawful discrimination.”
The bulletin, which comes on the heels of the CFPB’s reported investigation of dealer participation policies employed by auto finance sources, explains how the Equal Credit Opportunity Act (ECOA) applies to indirect auto lending. The ECOA makes it illegal for a creditor to discriminate in any aspect of a credit transaction on prohibited bases including race, color, religion, national origin, sex, marital status and age.
The CFPB recommends that indirect auto lenders take steps to ensure that they are operating in compliance with fair lending laws as applied to dealer markup and compensation policies. These steps may include, but are not limited to:
- Imposing controls on dealer markup, or otherwise revising dealer markup policies
- Monitoring and addressing the effects of markup policies as part of a robust fair lending compliance program
- Eliminating dealer discretion to markup buy rates, and fairly compensating dealers using a different mechanism that does not result in discrimination, such as flat fees per transaction
“Lender policies that allow dealers to markup the interest rate charged to a car buyer and share that revenue with the lender increase the risk of pricing disparities among consumers based on race, national origin and potentially other prohibited bases,” stated the CFPB in a release. “Research indicates that markup practices may lead to African Americans and Hispanics being charged higher markups than other, similarly situated, white consumers.”