WASHINGTON, D.C. -

Evidently, U.S. lawmakers still are unclear about how the Consumer Financial Protection Bureau is going about the policing of indirect auto lending, as another Senate democrat and House republican fired more questions to the new agency.

Within four days following this month’s CFPB’s Auto Finance Forum, a member of Senate Banking Committee and the House Financial Services Committee articulated similar lines of inquiry that’s been outlined by lawmakers on at least three different occasions since the bureau released its indirect auto lending guidance back in March.

The first letter to CFPB director Richard Cordray after the forum came from Rep. Blaine Luetkemeyer, a Missouri Republican who echoed a sentiment raised by auto industry associations about concerns revolving around how the bureau plans to prove wide-spread discrimination is taking place in dealership F&I offices.

“There is a difference between disparate treatment targeting members of protected classes versus facially neutral treatment that may inadvertently result in disparate impact,” Luetkemeyer wrote. “Disparate impact is not an appropriate way to enforce consumer laws against indirect auto lenders who in many ways never see a customer or have knowledge of a customer’s race.

“To the best of my knowledge, the Equal Credit Opportunity Act does not contain a disparate impact theory of discrimination,” he continued. “I am concerned that with the recent steps taken, the bureau is articulating entirely new dimensions of public policy surrounding fair lending, and doing so outside of the rulemaking process and without meaningful public stakeholder input.

“Moreover, it is my understanding that the CFPB has not yet studied how the recommended shift to a flat fee structure for reserve compensation would affect the cost of credit to borrowers, particularly low- and moderate-income borrowers who currently benefit from the many options available in a competitive auto finance marketplace,” Luetkemeyer went on to say.

Meanwhile, Sen. Jeffrey Merkley, an Oregon Democrat, wrote his own letter to the CFPB after 22 fellow members of the chamber joined forces on a message to the bureau back in October. Merkley made two specific requests similar to what Luetkemeyer mentioned.

“First, it would be helpful to have a study of discrimination in the auto marketplace to identify the real problem,” Merkley wrote. “Second, until such a study can shed light on policy options, please ensure the CFPB is not in practice mandating flat fees that could potentially hurt both dealers and customers.

“In doing so, please explore options for addressing discrimination that maintain flexibility for an auto dealer to give the consumer the best rate possible,” he continued.

Merkley wrapped up his letter with one more suggestion.

“The CFPB may also wish to expand its communication with auto dealers and indirect auto lenders to clarify any misconceptions that may exist regarding whether the guidance mandates any particular compensation model,” Merkley said.

Dealertrack Counsel Assesses Aftermath of Recent CFPB Auto Finance Forum

The most important takeaway Dealertrack Technologies’ associate general counsel for compliance Randy Henrick gleaned from the CFPB’s Auto Finance Forum didn’t even come from the bureau. It was a point reinforced by an official from the Department of Justice.

What prompted Henrick to describe the event in Washington, D.C., as an overall success stemmed from what Steve Rosenbaum said during a panel that included six other regulatory agencies, including the Federal Reserve, the Office of the Comptroller of the Currency and the National Credit Union Administration.

Rosenbaum is the chief of the Housing and Civil Enforcement Section at the Department of Justice. Henrick recapped how made Rosenbaum made an important connection between indirect auto lending and the Equal Credit Opportunity Act.

“He came out and said that ECOA neither requires nor prohibits discretion in setting rates,” Henrick told Auto Remarketing’s sister publication, SubPrime Auto Finance News, last week. “In effect, he endorsed the conceptual program that is the foundation for our program and many other venders, which there are ways to manage discretion to set a specific limit on a rate markup.

“I took that away as a very positive sign that the DOJ is in a much more reasonable place than the CFPB is, and that to the extent that they’re involved in resolving this issue it may come down in a much more appropriate manner. The CFPB seems to believe anything in which the dealer has under its discretion is unacceptable,” Henrick continued.

The CFPB has been targeting dealer participation since releasing guidance on the practice back in March. Cordray reiterated the position again during his opening remarks.

“When consumers sit down at the table to discuss their prospects for a loan, they are often unaware of the options actually available to them and are unaware of lender incentives, not effectively disclosed, for intermediaries to provide higher rates than they actually qualify for,” Cordray said.

“These incentives can result in African-American, Asian, and Hispanic borrowers paying more to access credit than similarly situated non-minority borrowers,” he continued. “We have seen this dynamic broadly at work in the mortgage market, and a similar dynamic exists also for auto loans.

“In that bulletin, we provided guidance to lenders that their mark-up policies, which allow dealers to exercise discretion over the interest rates they charge consumers and provide direct financial incentives for charging higher prices, may lead to fair lending violations,” Cordray went on to say. “When lenders provide this type of discretion and incentives — as we have seen time and again in the mortgage market — they create significant risk of illegal pricing disparities based on factors like race or national origin.

“Discrimination on these grounds, even when it happens unintentionally, causes real harm to consumers and violates the law,” he added.

Following Cordray’s presentation, the CFPB conducted two different panel sessions, one which included Damon Lester, president of the National Association of Minority Automobile Dealers, and Bill Himpler, executive vice president of the American Financial Services Association. The CFPB filled the other panel slots with officials from a wide array of consumer advocacy organizations.

“Going into it, I thought it would really be just a show for the CFPB, who had kind of stacked the panels with a bunch of consumer advocates. I’d like to believe the CPFB was doing something other than just showing to the Congress they could conduct an event and take comments,” Henrick said.

“I thought industry panelists did a far better job articulating the legitimacy of their positions than consumer bar did. I thought the consumer bar was very shallow and not credible with a lot of their positions,” he continued.

“I’d like to believe that the CFPB is actually listening and understanding that this issue is a lot more complex than what they initially thought. Certainly the comments from the industry and DOJ support that,” Henrick went on to say.

Beyond what the Department of Justice offered during the event, another element of the forum that piqued Henrick was what didn’t come from a regulatory agency that has punished dealers many times in the past — the Federal Trade Commission.

“The FTC doesn’t seem to be really interested in this. They said the right things, but what we’ve been able to hear is the FTC is focusing more on other issues,” Henrick said.

“That tells me they also believe, although they haven’t said so, that the approach of the CFPB is out there in right field and they’re not inclined to say and they have not said that dealer discretion equals discrimination,” he went on to say.

Nick Zulovich can be reached at nzulovich@autoremarketing.com. Continue the conversation with Auto Remarketing on both LinkedIn and Twitter.