In a recent letter to the CFPB, a bipartisan group of 22 senators expressed concerns related to the agency’s guidance for indirect auto lenders, saying it could “curtail a pro-competitive feature of the indirect vehicle financing market.”
Indirect vehicle financing is a method in which an auto dealer arranges vehicle financing through a third-party lender and is typically compensated by negotiating the retail margin with the consumer. Compensation is generally capped by contract, thereby allowing consumers to ultimately choose the best rate between the dealer and other creditors.
The senators said the CFPB’s fair lending guidance was “widely interpreted” as encouraging lenders to eliminate or limit a dealer’s discretion to negotiate financing for customers instead of encouraging lenders to compensate dealers using another method, such as a flat fee per transaction.
“Although [the] Equal Credit Opportunity Act does not mandate or even address flat fees, the Bureau’s guidance bulletin suggests this change because of its concern that permitting negotiation over a consumer’s interest rate creates a significant risk of pricing disparities on the basis of race, national origin and potentially other prohibited bases,” the letter said.
The lawmakers said that while they support the CFPB’s efforts to eliminate illegal discriminatory lending practices, the agency has “yet to explain its basis for [the] assertion” that “disparate impact discrimination is present in the indirect auto financing market.”
The senators requested that the agency provide information related to the methodology used to determine the presence of disparate impact in a creditor’s portfolio; to identify the range of coordination with the Federal Reserve and FTC prior to March; to explain the CFPB’s decision to circumvent the Administrative Procedures Act rulemaking process in favor of a guidance bulletin and why the agency did not allow the public to comment on the guidance; and how a cost-benefit analysis into the impact of flat fees was conducted.
Signatories to the letter included: Sens. Rob Portman (R-Ohio); Jeanne Shaheen (D-N.H.); David Vitter (R-La.); Heidi Heitkamp (D-N.D.); Pat Roberts (R-Kan.); Amy Klobuchar (D-Minn.); Kelly Ayotte (R-N.H.); Kay Hagan (D-N.C.); Deb Fischer (R-Neb.); Mark Begich (D-Alaska); John Thune (R-S.D.); Joe Manchin (D-W. Va.); Richard Burr (R-N.C.); Mark Pryor (D-Ark.); Jerry Moran (R-Kan.); Joe Donnelly (D-Ind.); Mike Crapo (R-Idaho); Bill Nelson (D-Fla.); Jeff Sessions (R-Ala.); Mary Landrieu (D-La.); Rand Paul (R-Ky.); and Mazie Hirono (D-Hawaii).