Newsroom

September 01, 2015

CFPB's focus on auto lenders may result in higher loan prices

CFPB's efforts to police the way car loans are priced to avoid discrimination against minority buyers is causing some automakers to overhaul their loan pricing, a move that could increase consumers' overall loan costs.

The Wall Street Journal reported this week that after American Honda Finance Corp., a unit of Honda Motor Co., settled with CFPB and the Justice Department in July over alleged discriminatory loan practices, the automaker lowered one portion of its loans' interest rates but also raised another component to help protect consumers from discrimination.

Jared Allen, a spokesman for the National Automobile Dealers Association, told the WSJ that CFPB's continued focus on auto loans "will invariably lead to many consumers paying more for auto financing."

WSJ also noted that at least eight large lenders are under investigation by CFPB or the Justice Department for similar allegations over discrimination against minority buyers. CFPB has reached more than $200 million in anti-discrimination agreements since 2013 with several large car-financing companies, the article stated.

CFPB is pressing lenders to lower the caps they set on dealer markups or to switch to flat fees – a percentage of the loan amount or a set dollar fee. CFPB has encouraged lenders to step up their oversight of dealers to make sure they are in compliance and discriminatory pricing isn't being practiced.

CFPB issued a bulletin in 2013 that said indirect lenders, including credit unions, would be held liable for Equal Credit Opportunity Act violations of auto dealers, including violations arising from disparate impact. NAFCU steadfastly supports the enforcement of fair lending laws but it has raised concerns about actions that rely solely on the use of the disparate-impact theory of discrimination.