Pub. 1 Issue 4

12 www.glancda.org Indirect Auto-Finance Mistakes and Fair Lending F air lending matters. It’s one thing to compete with other dealers by negotiating with consumers about specific financing terms. It’s another thing to discriminate against some of those consumers because they don’t have the right ethnicity, gender, or race. Most people would not argue the merits of competition or non- discrimination. At the same time, there is another aspect to consider for any dealer who is trying to comply with the rules that specifically govern fair-lending policies for indirect auto finance: how, exactly, does the Consumer Financial Protection Bureau (CFPB) determine whether a fair-lending violation ex- ists? It is much easier to comply with a set of laws if it is clear what compliance does, or does not, mean. Running a business without knowing what those rules are is somewhat like trying to throw darts when you are blindfolded. The CFPB has made it clear that there is a fair-lending concern about dealer participation and the ability to decide markups on a discretionary basis, but getting the necessary information from the CFPB was difficult enough that the federal government, as represented by House Democrats and a bipartisan group of Senators, decided to involve itself by writing letters to CFPB’s director, Richard Cordray. His responses do not clear up every ambiguity, but they do provide valuable information about how CFPB is approaching indirect auto finance. In particular, it is now clear that Mr. Cordray’s concern, and therefore the concern of the CFPB, has to do with the Equal Credit Opportunity Act (ECOA) of 1974. When CFPB reviews an indirect auto lender, therefore, it is specifically interested in credit denials, buy rates (the lender’s interest rate for the dealer), and the buy-rate markup (the interest rate quoted by the dealer to the customer, minus the buy rate). BY SUSAN E. MORGAN