WASHINGTON – The National Automobile Dealers Association (NADA), the American International Automobile Dealers Association (AIADA), and the National Association of Minority Automobile Dealers (NAMAD) today applauded the efforts of five financial services organizations to fix the serious flaws in the Consumer Financial Protection Bureau’s approach to regulating auto financing.
The groups, which include the American Bankers Association, American Financial Services Association, Consumer Bankers Association, Financial Services Roundtable and U.S. Chamber of Commerce, today sent a letter to CFPB Director Richard Cordray urging the Bureau to change its enforcement policy on dealer-assisted financing, in light of findings in a peer-review study that showed there is significant bias in the Bureau’s analysis.
“Discrimination in the market simply cannot be tolerated,” said NADA President Peter Welch. “However, in light of the rigorous peer-review that has cast significant doubt on the CFPB’s findings, the Bureau should change course – or at least hit the pause button – and address these new concerns. We applaud the courage of these organizations for speaking up.”
In 2013, the CFPB issued guidance urging lenders to change the way they compensate dealers for arranging financing for their customers because of a risk of disparate impact in the loans issued. However, an in-depth study by Charles River Associates demonstrates that the analysis the CFPB uses in enforcing its guidance is substantially flawed and that, as a result, the Bureau’s findings are erroneous and overstated – in some cases, dramatically so. For example, Charles River, after reviewing data from more than 8 million financing transactions, concludes that the CFPB overstates one of its comparisons by 41%. And, remarkably, despite this indictment of its methods, the CFPB has yet to address the study or its implications on CFPB policy.
In the current dealer-assisted financing model, consumers benefit as dealers obtain quotes from dozens of finance sources – many of which consumers would not ordinarily have access to. However, auto loan customers are not required to state their race or ethnicity on loan applications. To determine this, the government uses complex statistical modeling to estimate the number of minorities in a sample. The Charles River study showed that the CFPB’s use of this modeling contains numerous flaws, thereby casting doubt on the CFPB’s larger policy.
The flaws in the CFPB’s methodology have not stopped automobile dealers from developing procedures to address the CFPB’s concerns about the risk of discrimination in auto financing. In 2014, NADA, AIADA, and NAMAD jointly released the NADA Fair Credit Compliance Policy & Program, which provides a dealer with an optional mechanism for ensuring that its credit pricing is established in a consistent manner and is based exclusively on legitimate business considerations. The program is modeled on – and fully adopts – a Department of Justice fair credit compliance program that the agency required dealers to implement in prior enforcement actions.
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