March 21, 2013

CFPB notes ECOA liability for indirect lenders


March 22, 2013 – The CFPB issued guidance Thursday that potentially sets the stage for making indirect lenders, including credit unions, liable for fair lending violations by auto dealers.

In Bulletin 2013-02, the CFPB focuses on the potential for pricing disparities on the basis of race, nationalorigin and possibly other prohibited factors by dealers that facilitate funding for consumers' auto purchases through indirect lenders. If there are disparities within the indirect lender's portfolio, it says, lenders may be liable under the legal doctrines of both disparate treatment and disparate impact.

"An indirect auto lender's markup and compensation policies may alone be sufficient to trigger liability under the ECOA if the lender regularly participates in a credit decision and its policies result in discrimination," the bulletin states.

NAFCU President and CEO Fred Becker, noting the association strongly advocates for fair lending, said the guidance implies that the CFPB will seek to hold credit unions accountable for others' actions. He said it puts credit unions between auto dealers and the CFPB, which has not received direct supervisory authority over auto dealers under the Dodd-Frank Act.

"This essentially treats the auto dealer as a third-party service provider of the credit union, increasing credit union's risk for liability and giving the CFPB a way to reach auto dealers in the absence of direct statutory authority," said Becker.