WASHINGTON, D.C. — As the agency's director reinforced the
use of disparate impact to check for discrimination, a new report by the
Bipartisan Policy Center's Financial Regulatory Reform Initiative includes
several recommendations for the Consumer Financial Protection Bureau and
Congress to improve the state of consumer protection, increase the efficiency
of the financial services industry and improve the quality of regulation.

Overall, the report indicated that when the bureau operates
in a transparent, open and iterative manner, repeatedly seeking input from all
stakeholders throughout a process, the results were generally positive.

The BPC determined the bureau was able to meet its statutory
deadlines on a series of complex rules, while considering comments and revising
initial findings to improve the final product.

However, report orchestrators said when the bureau made
unilateral decisions, rolled out initiatives, rules, or processes through a
more closed, internal deliberation process, the results were far more likely to
be problematic.

One of the methods the auto finance industry in particular
has found problem is the use the theory of disparate impact.

David Westcott, who is the current chairman of the National
Automobile Dealers Association, pointed out earlier this year that the
foundation for the CFPB's guidance on indirect auto lending 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, Westcott
said unintentional discrimination is taking place.

CFPB director Richard Cordray defended the bureau's use of
disparate impact when he spoke earlier this week at the American Banker
Regulatory Symposium in Arlington, Va.

"We made it clear last year that – like the other banking
regulators and the Justice Department – we will pursue discrimination in
consumer financial markets based on disparate impact as well as disparate
treatment," Cordray said.

"From the perspective of a consumer disadvantaged by
policies that have a discriminatory effect, it makes no practical difference
whether a lender consciously intended to discriminate," he continued.

"We also have made it clear that lenders are responsible for
the operation of their lending programs, even if they are structured to work
with some sort of middleman who stands between them and the borrower," Cordray
went on to say. "The bottom line is that every consumer should have equal
access to credit, as required by law."

Turning back to the report evaluating the CFPB, Rick Fischer
of Morrison & Foerster and Eric Rodriguez of the National Council of La
Raza, co-chairs of the initiative's Consumer Protection Task Force, authored
the report titled, "The Consumer Protection Bureau: Measuring the Progress of a
New Agency."

Fischer and Rodriguez said their report, which reviews the
performance of the bureau since it was created three years ago, is the first
bipartisan examination of the CFPB's operations and effectiveness.

Throughout the nearly year-long review, the initiative met
with the CFPB, leading consumer advocates, federal and state bank regulators,
and regulated industry participants in the bank and nonbank space.

"The bureau is enormously important to protecting consumers
of financial products today and for years to come, which is why it was a
central piece of the Dodd-Frank legislation," Rodriguez said.

"To date, the bureau has taken an open and thoughtful
approach to rulemaking, which will be important to continue this going forward.
However, there are areas where the bureau can do more to help consumers
including investing in and regulating activities among non-banks and spending
additional time and resources to investigate, authenticate, and remedy consumer
complaints," he continued.

The report also recommended that the bureau should more
often use a rule-making or other interactive, transparent process instead of
choosing to issue guidance based on internal deliberations alone.

The authors found the rule-making process is most effective
because it requires the Bureau to go through the valuable process of seeking
and considering stakeholder input.

Specifically, the report noted that when the bureau chooses
to issue guidance, it should use a "notice and comment" procedure to gather
valuable input beforehand, and called for the CFPB to adopt a set of metrics to
judge the agency's future performance and effectiveness. Specific metrics can
be found in the report.

Additionally, BPC's report called on the bureau to focus
more attention on nonbank providers of consumer financial products and services.
The report also highlighted the need for the bureau to improve security for the
data it collects and better coordinate its request for data in a fashion
consistent with its supervisory and examination needs.

And, the report warned that the bureau's goal of occupying a
trusted place among consumers could be significantly harmed if they were to
experience a data breach.

"The bureau has done an admirable job in standing up a new
agency in such a short time period of time," Fischer said. "Nevertheless,
although the bureau's product-line focus to examinations may prove to be a
useful way to review consumer products and services over time, the agency has
had problems implementing this process.

"The bureau's supervision and examination functions would be
strengthened if it more promptly closed out exams, ended the use of enforcement
lawyers in examinations, and improved coordination with fellow regulators," he
went on to say.

To read the full report, click here.

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


Normal
0
false
false
false
EN-US
X-NONE
X-NONE

/* Style Definitions */
table.MsoNormalTable
{mso-style-name:”Table Normal”;
mso-tstyle-rowband-size:0;
mso-tstyle-colband-size:0;
mso-style-noshow:yes;
mso-style-priority:99;
mso-style-qformat:yes;
mso-style-parent:””;
mso-padding-alt:0in 5.4pt 0in 5.4pt;
mso-para-margin-top:0in;
mso-para-margin-right:0in;
mso-para-margin-bottom:10.0pt;
mso-para-margin-left:0in;
line-height:115%;
mso-pagination:widow-orphan;
font-size:11.0pt;
font-family:”Calibri”,”sans-serif”;
mso-ascii-font-family:Calibri;
mso-ascii-theme-font:minor-latin;
mso-fareast-font-family:”Times New Roman”;
mso-fareast-theme-font:minor-fareast;
mso-hansi-font-family:Calibri;
mso-hansi-theme-font:minor-latin;}