The CFPB praised BMO Harris Bank last week after it became the first indirect auto lender to switch to a flat fee structure to limit the amount of power auto dealers have to influence finance pricing.
Last March, the CFPB issued a bulletin reminding lenders that participate in indirect auto lending that they must comply with fair lending laws through their indirect lending programs.
Indirect lenders often allow dealers to charge the consumer an interest rate higher than the rate originally provided by the lender in what is known as dealer markup, a practice the Center for Responsible Lending said “adds billions of dollars to the cost of car loans.”
The CFPB said in the guidance that lender policies that allow for dealer markup “increase the risk of price disparities among consumers based on race, national origin and potentially other prohibited bases.”
“It is encouraging to see BMO Harris taking this proactive step to protect consumers from discrimination,” CFPB Director Richard Cordray said. “When people go to buy a car, they should not have to worry whether they’ll pay more for their auto loan because of their race, gender, or ethnic background. The CFPB is committed to creating a fair marketplace for all consumers, and we recognize that many lenders share that commitment as well.”