WASHINGTON, D.C. — During the Consumer Financial Protection Bureau’s semi-annual presentation to Congress in March, Director Richard Cordray offered little direction as to the regulator’s next steps in the auto lending market, but he did confirm that the bureau disagrees with a recent study calling its methodology flawed.
In November, a study commissioned by the American Financial Services Association (AFSA) and conducted by Charles River Associates found that the proxy methodology used by the CFPB to determine disparate impact to legally protected groups has significant error rates. Using this method, the bureau has alleged that dealers are charging minorities higher rates for auto loans.
Five trade groups issued a letter to the CFPB last month urging the regulator to respond publicly to the study’s findings. According to the study, when the CFPB’s proxy uses an 80% probability that a person belongs to an African American group, the proxy correctly identified their race less than 25% of the time.
“We don’t agree with the conclusions of the report and we’ve looked at it fairly carefully,” Cordray told members of the House Committee on Financial Services. “… We don’t find some obligation to respond to studies out there all the time on all aspects of our work, but, as we always will do with any analysis of data, we’ve looked carefully at it to figure out what it might mean for our program.”
The director also fielded questions about proposed solutions to address its disparate impact claims in auto lending, including flat fees and compliance management programs. While he acknowledged that moving to flat fees was not the end-all solution, Cordray seemed unenthused about fair lending compliance policies like the one launched by the National Automobile Dealers Association last year.
“… People can have a compliance management system,” he said. “But it feels to me very onerous and burdensome.”
About the NADA’s program, he added: “The dealer program that they’ve developed may well be an excellent program and we’ve talked to them about it at their suggestion. It’s really more for the Justice Department to say what they think of that. [It’s] not really within my jurisdiction.”