In March 2013, the CFPB issued a bulletin reminding indirect auto lenders that under the Equal Credit Opportunity Act (ECOA), it is illegal for a creditor to discriminate in any aspect of a credit transaction on prohibited bases including race, color, religion, national origin, sex, marital status, and age.

Today the Bureau is releasing a new "Supervisory Highlights" report, which details the auto-lending discrimination the CFPB has uncovered at banks under Bureau supervision over the past two years. CFPB examiners found that these indirect auto lenders had discretionary pricing policies that resulted in discrimination against African-American, Hispanic, and Asian and Pacific Islander borrowers. As a result, these borrowers paid more for their auto loans than similarly situated non-Hispanic white borrowers.

When lenders have not followed the law, the Bureau has used both enforcement and supervisory actions to direct institutions to obtain remediation to harmed consumers. Recent non-public CFPB supervisory actions at indirect auto financing institutions resulted in approximately $56 million in remediation for up to 190,000 consumers.

Interior of 1912 Locomobile Model 48 Torpedo. Photo taken in 2009; Wikimedia Commons

To prevent discrimination from reoccurring at these lenders, the CFPB has identified at least three possible ways institutions can limit their fair lending risk:

• Conduct internal monitoring for discrimination: Auto lenders should monitor and correct for potential discrimination that stems from discretionary pricing policies and address the effects of markup policies as part of a robust fair lending compliance program.
• Limit discretionary markups: Indirect auto lenders can reduce the risk of potential discrimination by limiting the discretion dealers have to mark up the price of a loan financed by the lender.
• Eliminate dealer discretion for markups: Indirect auto lenders can also lower their fair lending risk by eliminating dealers’ ability to markup the price of a loan and fairly compensating dealers using a different mechanism.

Today’s supervisory highlights report is available at: http://files.consumerfinance.gov/f/201409_cfpb_supervisory-highlights_auto-lending_summer-2014.pdf

Methodology for Evaluating Auto Lending

In order to evaluate a lender’s compliance with fair lending laws, CFPB examination teams use a proxy methodology just as other federal supervisory agencies and many private companies do. To proxy for race and national origin, exam teams rely on data associated with consumers’ last names and places of residence. Census Bureau data is first used to calculate the probability that an individual belongs to a specific race and ethnicity based on their last name. Exam teams then update that probability based on the demographics of the area in which the person resides again using Census Bureau data. 

The CFPB is releasing a white paper which details the precise methodology the Bureau uses to calculate these probabilities, and is also releasing the Bureau’s computer code so that lenders can perform the same analysis that the Bureau’s examination teams perform. The white paper also reports on a study the Bureau has conducted which finds that the integrated approach to building a proxy is more accurate than either surname or geographic data individually.

More details on the CFPB’s proxy methodology for race and national origin can be found at: http://files.consumerfinance.gov/f/201409_cfpb_report_proxy-methodology.pdf

Editor's Note: Protecting servicemembers from predatory auto loans: Harry and Ari’s story

Pages: 1 · 2

More Articles

• Medicare Advantage Increasingly Popular With Seniors — But Not Hospitals and Doctors
• November 1, 2023 Chair Jerome Powell’s Press Conference on Employment and Inflation
• Julia Sneden Redux: Age Rage; Sometimes You Just Have to Strike Back
• Medical Billing and Collections Among Older Americans
• Shhhhhh by Ferida Wolff
• Women Consistently Earn Less Than Men; Women Are Over-represented in Lower Paying Jobs and, As They Age, the Pay Gap Widens Even More
• Yale School of the Environment's Study of Environment Found "Total Indirect Emissions from Electric Vehicles Pale in Comparison to the Indirect Emissions from Fossil Fuel-powered Vehicles"
• Rose Madeline Mula Writes: I’ve Got A Secret – NOT!
• Government of Canada Renews Investment in Largest Canadian Study on Aging
• Biden-Harris Administration Marks Anniversary of Americans with Disabilities Act and Announces Resources to Support Individuals with Long COVID, Increased Access to Democracy for Voters with Disabilities