MCLEAN, Va. — Chairman David Westcott took to the National Automobile Dealers Association (NADA)’s website in May to call out the Consumer Financial Protection Bureau (CFPB) for its lack of transparency in its quest to regulate dealer participation programs.
Westcott criticized the CFPB for releasing its fair lending guidance regarding dealer participation without demonstrating that problems exist and without analyzing the effects of any changes it makes to that compensation method.
“When a federal agency seeks to upend an enormously efficient $783 billion market, it should only do so in a manner that is transparent, thoroughly researched, and that benefits the interagency coordination and public feedback,” he wrote.
The chairman also called out the CFPB for centering its guidance on a theory of liability called “disparate impact.” Under that theory, if an auto finance policy results in a certain group of consumers paying more for credit than similarly-situated consumers in other groups, then unintentional discrimination is taking place.
“The bureau claims that this theory exists under the Equal Credit Opportunity Act and Regulation B and is using it to target the compensation arrangements used by indirect auto lenders with dealers,” he wrote. “The bureau favors arrangements in which indirect lenders compensate dealers through the use of flat fees instead of arrangements that allow dealers to discount the credit rates that they offer to consumers in order to earn their business.”
The chairman’s post also questions the CFPB’s lack of oversight and for not coordinating its enforcement actions with other regulatory agencies like the Federal Trade Commission and the Federal Reserve Board. To read Westcott’s letter, click here.
The chairman’s comments echoed what F&I and Showroom’s Gregory Arroyo wrote in the magazine’s April 2013 issue. To read his editorial, click here.