LAKE SUCCESS, N.Y. — The most important takeaway Dealertrack
Technologies' associate general counsel for compliance Randy Henrick gleaned
from last week's Consumer Financial Protection Bureau 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 last week's 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 — the primary topic of
last week's event — and the Equal Credit Opportunity Act.

"He came out and said that ECOA neither requires nor prohibits
discretion in setting rates," Henrick told SubPrime Auto Finance News this 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. Bureau director Richard
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 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@subprimenews.com. Continue the conversation with SubPrime Auto Finance News on LinkedIn and Twitter.


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