McLEAN, Va. — Ever since the Consumer Financial Protection
Bureau released its fair lending guidance to indirect auto lenders on March 21,
dealers and lenders have questioned the basis for the guidance — and now
Washington lawmakers are, as well.

The foundation for the CFPB's guidance wholly rests on a
disputed theory of liability called "disparate impact." Under this theory, if
the auto finance system results in minorities paying more for credit than
non-minorities in the same credit tier, then unintentional discrimination is
taking place.

In an effort to ensure lenders are complying with the Equal
Credit Opportunity Act (ECOA) and Regulation B, the CFPB targeted the
compensation arrangements used by indirect auto lenders with dealers.

Late last month,
House Republicans — including 27 members of the Financial Services Committee —
sent a letter to the CFPB questioning the intent and methodology behind its
guidance.

Just as NADA has asked CFPB officials to provide grounds for
its assertion that disparate impact exits in auto lending today, Republican
lawmakers also called on the CFPB to provide the rationale behind its new fair
lending guidelines.

The House letter, which was dated on June 20, asked the CFPB
to explain how it determined two important data points in its study regarding
disparate impact in the auto industry: the background of certain borrowers and
the pricing discrepancies.

A total of 35 House members signed the letter which, in
part, read: "It is troubling that the agency has initiated this process without
a public hearing, without public comment, and without releasing the data,
methodology, or analysis it relied upon to support such an important change in
policy."

The lawmakers have asked the Bureau to respond within 30
days.

This isn't the first
time Congress has stepped in to question the unfounded guidance. A letter dated
May 28, was circulated by Congresswoman Terri Sewell to colleagues on the House
Financial Services Committee.

A total of 12 Democrats signed the letter and it was sent
directly to CFPB director Richard Cordray. Their letter also asks for the
analysis and methodology behind the guidance.

Despite these
requests, the CFPB has not revealed any of this information, including the data
it used to run its statistical analysis. This poses a major problem since
dealers resoundingly agree that a federal agency has an obligation to provide
transparency, reliable data analysis, interagency coordination and public
feedback when it attempts to change the financing method of a $783 billion auto
loan market.

Although the CFPB is
not accusing dealers of intentional discrimination, the series of actions it
has taken could drastically change how auto finance sources compensate dealers
for arranging auto loans. Dealers across the nation understand that changing
the system could stifle competition and end up costing consumers
more-ultimately hurting the people the CFPB is trying to protect in the first
place.

To date, the CFPB has issued subpoenas to several large auto
lenders seeking information on sales practices, pricing and disclosure. The
Bureau is seemingly pressuring lenders to change the way they compensate
dealers so they ultimately move toward a flat fee model.

Over the past few months, NADA opened a dialogue with CFPB
officials — and met several times — to advocate our position and gain clarity
on theirs. We have contested the assertion that there is a potential for
disparate impact on protected classes of consumers in today's auto lending.

We will continue to let officials — and the public — know
that dealers positively and fairly help secure financing for their customers.

Editor's Note: David Westcott is the 2013 chairman of the
National Automobile Dealers Association.

Continue the conversation with SubPrime Auto Finance News on LinkedIn and Twitter.


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