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CFPB Preparing to Cite Three Captives, American Banker Reports

According to proposed consent orders obtained by American Banker, Honda, Nissan and Toyota’s captive finance companies could soon be on the hook for dealer participation policies.

by Staff
July 1, 2015
3 min to read


WASHINGTON — According to proposed consent orders acquired by American Banker, the Consumer Financial Protection Bureau (CFPB) is preparing to make its next move in auto finance as soon as July. The regulator is expected to cite three major auto lenders for allegedly allowing their dealer partners to charge higher interest rates on auto loans to minority buyers.

If approved, the consent orders would require American Honda Finance Corp., Toyota Motor Credit Corp. and Nissan Motor Acceptance Corp. to pay remuneration to affected consumers. But according to the news source, the regulator is also offering the captives the chance to forgo civil penalties in exchange for cutting the price discretion that they offer dealers by roughly half.

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A spokesperson for Toyota Financial Services, however, said that is not likely to happen. “Toyota Financial Services currently has no plans to change our pricing model,” he noted.

The CFPB has been targeting dealer discretion since it issued a fair lending guidance in March 2013. It claimed policies that allow dealers to mark up interest rates on retail installment sales contracts result in minorities paying higher rates. In late 2014, the CFPB and the Department of Justice began notifying lenders —including Toyota Motor Credit and American Honda Finance — that they could face enforcement actions related to these policies.

“As we have previously disclosed, the Consumer Financial Protection Bureau (CFPB) and U.S. Department of Justice (DOJ) are conducting a joint inquiry into the indirect auto lending practices of Toyota Financial Services and other auto finance providers,” Toyota’s spokesperson told F&I and Showroom. “Because our discussions with the agencies are ongoing, it would be inappropriate to comment beyond noting that we look forward to continuing to work with them in pursuit of an outcome that serves the best interests of consumers while preserving auto finance providers’ ability to compete.”

Since issuing its guidance on dealer participation, the CFPB has recommended that auto finance sources adopt a flat-fee compensation model. But organizations like the National Automobile Dealers Association (NADA) have argued that the flat-fee compensation model will not eliminate dealer pricing discretion, since dealers would still exercise discretion in selecting the finance source to which they would sell a contract.

"If what was reported by American Banker is accurate, this is indeed a very sad day for consumers," the NADA said in a statement. "By denying millions of consumers the right to negotiate a better deal for themselves when they finance the purchase of a new vehicle, these types of enforcement actions will bring only economic harm to the very people that the CFPB was mandated by Congress to protect."

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The association noted that the CFPB is facing rising opposition in H.R. 1737, a bill that would force the bureau to be more transparent in its dealings with the auto finance market. A committee action on the bill is expected soon.

"As the CFPB continues to attempt to alter the marketplace without any opportunity for public input or any consideration of the costs it will impose on consumers, the momentum behind H.R. 1737 will only increase," the NADA noted.

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