Compliance Blog

Jul 22, 2015

CFPB Finalizes TRID Delay; CFPB and Justice Department Action Against Honda for Alleged Discriminatory Auto Lending Practices; Farewell; Programming Note

Written by Bernadette Clair, Senior Regulatory Compliance Counsel

CFPB Finalizes TRID Delay. Yesterday, the CFPB finalized the delay of the TRID rule until October 3, 2015 and clarified that the delay will also apply to the post-consummation escrow cancellation and mortgage servicing transfer notices. NAFCU noted this ambiguity in the proposal and stressed in our comment letter that this needed to be clarified. Here is the excerpt relating to the post-consummation notices (escrow cancellation, changes to mortgage servicing transfer notice):

“The technical amendments also take effect on October 3, 2015, the same effective date as the TILA-RESPA Final Rule and Amendments. Some commenters specifically asked whether the change in effective date to October 3, 2015, applies to the postconsummation notice requirements including §§ 1026.20(e) and 1026.39(d)(5). As discussed in the TILA-RESPA Final Rule, implementation of the Dodd-Frank Act disclosures in §§ 1026.20(e) and 1026.39(d)(5) becomes mandatory on the effective date, now October 3, 2015. As discussed further in part VII below, the portions of this final rule related to the delay in the effective date to October 3, 2015, are effective immediately upon publication in order to move the effective date for the TILA-RESPA Final Rule and Amendments and the amendatory instruction discussed in note 4 from August 1, 2015 to October 3, 2015. As a result of this final rule, the provisions of the TILA-RESPA Final Rule and Amendments, as well as the technical amendments and corrections made in this final rule, are not effective immediately upon publication, but on October 3, 2015.” (Emphasis added)

The Bureau also rejected requests for a “formal grace period or dual compliance period” meaning early compliance with the rule is still not permitted.


CFPB and Justice Department Action Against Honda for Alleged Discriminatory Auto Lending Practices. Last week, the CFPB and Department of Justice (DOJ) announced a settlement to resolve alleged discriminatory auto lending practices by American Honda Finance Corporation (Honda) against African-American, Hispanic and Asian/Pacific borrowers. The CFPB’s press release and the consent order between the CFPB and Honda are available here and here, respectively. Honda’s settlement with the DOJ is subject to court approval, and the DOJ has filed a complaint and proposed order in the U.S. District Court for the Central District of California.

The action focuses on indirect auto lending practices, specifically dealer markups. According to the consent order, Honda permitted dealers to mark-up consumers’ interest rates by as much as 2.25 percent for contracts with terms of 60 monthly payments or less, and 2 percent for contracts with greater than 60 monthly payments. However, the allegations are that as a result of its dealer discretion pricing policies, Honda charged borrowers higher interest rates because of their race or natural origin, and not because of the borrowers’ creditworthiness or other objective credit risk criteria.

From the DOJ’s press release:

“The United States’ complaint alleges that the average African-American victim was obligated to pay over $250 more during the term of the loan because of discrimination, the average Hispanic victim was obligated to pay over $200 more during the term of the loan because of discrimination and the average Asian/Pacific Islander victim was obligated to pay over $150 more during the term of the loan because of discrimination. The Equal Credit Opportunity Act (ECOA) prohibits such discrimination in all forms of lending, including auto lending.”

Under the CFPB order, Honda must substantially reduce or eliminate entirely dealer discretion; pay $24 million in damages for consumer harm; and administer and distribute funds to victims. I thought this excerpt from the CFPB’s press release, regarding dealer discretion, was of interest:

“Honda will reduce dealer discretion to mark-up the interest rate to only 1.25 percent above the buy rate for auto loans with terms of 5 years or less, and 1 percent for auto loans with longer terms. Honda also has the option under the order to move to non-discretionary dealer compensation. The Bureau did not assess penalties against Honda because of Honda’s responsible conduct, namely the proactive steps the company is taking that directly address the fair lending risk of discretionary pricing and compensation systems by substantially reducing or eliminating that discretion altogether.”

The CFPB has been looking at fair lending issues in the indirect auto market for some time now. As we have previously blogged, the CFPB released Bulletin 2013-02 in March 2013 to indirect auto lenders about compliance with the Equal Credit Opportunity Act (ECOA), and released a supervisory highlights report in September 2014 detailing supervisory activities in the indirect auto lending market.


Farewell.  Today is my last day at NAFCU, so I just want to take a moment to thank everyone. I’ve had the opportunity to work with great colleagues here at NAFCU and I am thankful for all of the opportunities over the past few years. A big thank you to NAFCU members and blog readers – I’ve enjoyed working with many of you on compliance questions, meeting folks at conferences, chatting over the phone, and emailing.  I’m also staying within the credit union industry, and will be moving in-house at a credit union. So, I’m not going far and I look forward to staying in touch. Thanks again for everything!


Programming Note. NAFCU’s office will close at noon today for an all-staff team-building event.