-
In a series of internal documents that were reviewed by American Banker, Consumer Financial Protection Bureau officials repeatedly acknowledge its methodology could overcount the potential discrimination by firms, but say they prefer that to the alternative where bias is underestimated.
September 17 -
The Consumer Financial Protection Bureau has struggled internally with how to end potential discrimination in auto lending, including debating whether it should cite a large lender in the hopes of effectively ending the ability of partnering dealers to mark up loans with all lenders.
September 24 -
The CFPB hired Dr. Bernard Siskin three years ago to serve as the agency's expert witness when it brings discrimination cases against lenders. But Siskin has also been hired by JPMorgan Chase, Citigroup and other big banks to represent them in bias cases against the CFPB, causing issues for the agency.
September 28
WASHINGTON — The Consumer Financial Protection Bureau took "misguided and deceptive" actions in extracting settlements from indirect auto lenders for possible discrimination against minorities, House Republicans said in a report issued Tuesday.
The report, released by Republicans on the Financial Services Committee, accuses the CFPB of unfairly punishing the lenders for use of a common compensation practice that allows dealership partners to increase the wholesale rate on loans.
For years the CFPB has been using a theory called disparate impact to cite lenders for unintentional discrimination resulting from their agreements with dealerships, over which the CFPB has no jurisdiction. The CFPB relied on a "flawed" statistical methodology to further its policy aims and exceed its authority, the report said.
"As internal documents … reveal, the bureau's [Equal Credit Opportunity Act] enforcement actions have been misguided and deceptive," the report said. "The bureau ignores, for instance, the lack of congressional intent to provide for disparate impact liability under ECOA, just as it ignores the fact that indirect auto finance companies are not always subject to ECOA and have a strong business-justification defense."
CFPB officials declined to comment on the report Tuesday until they can review it in detail, bureau spokesman Sam Gilford said.
However, one of the agency's primary goals has been the elimination of illegal discrimination, he said.
"Discrimination in auto lending has resulted in minority borrowers being unfairly charged higher interest rates on their loans," he said. "We will continue to fairly and consistently enforce the Equal Credit Opportunity Act to ensure borrowers harmed by discrimination receive the relief they deserve."
American Banker published a series of stories in September that showed CFPB staffers knew their methodology overestimated the number of minorities who were potentially harmed by dealer pricing, but continued to use it so they could seek big settlements with major lenders in an attempt to eliminate or curb price discretion.
Memos showed that the CFPB has more than $1 million in contracts with the firm BLDS LLC to provide statistical analysis on the CFPB's fair-lending cases while the firm's owner, Bernard Siskin, also represents most major banks in defending against such cases, according to the series.
The report from Financial Services Committee Republicans noted as a "potential conflict of interest" one unnamed bank's hiring of Siskin to punch holes in the CFPB's methodology.
The report also claims internal memos revealed that CFPB senior officials advised Director Richard Cordray "on the weaknesses of their legal theory," including that they knew their own methodology was less accurate than other available methods and that it "may not even be recognized as actionable by the Supreme Court."
Yet the CFPB persisted in using its enforcement hand to create a "global solution" that would push lenders into a flat-fee structure or lower the cap on markups with dealers, the report said. However, few indirect auto lenders have voluntarily changed their practices outside of a handful of settlements with the CFPB.
Some industry trade groups immediately responded to the report, reiterating their concerns with the CFPB's method for determining disparate impact. Industry proponents have long argued that car costs overall will increase as a result of lowering or eliminating dealers' price discretion.
"The actions of the CFPB are forcing consumers to pay much more than they need to for auto financing, and this report only illustrates the lengths to which the CFPB has gone to hide that fact from consumers and block transparency in their policymaking," Peter Welch, president of the National Automobile Dealers Association, wrote in an email. "Frankly, consumers should be outraged."
Chris Stinebert, chief executive of the American Financial Services Association, also backed the right to dealer-discretion pricing.
"Consumers deserve to be treated fairly, and financing cars and trucks through the dealer remains the most convenient and cost effective way to purchase a vehicle," Stinebert said in a separate email.
With the CFPB's "plans for a true 'global solution' having stalled," the committee Republicans' report said, the CFPB has begun planning "a major expansion of its individual enforcement actions." It cited a June 29 internal memo in which CFPB staffers discuss investigating more than two dozen auto lenders' pricing policies with dealers.
The report also claims that the CFPB may be considering new rules to expand its authority under the Equal Credit law and prohibit lenders from compensating dealers based on the terms of a loan.
The committee has posted the report, "Unsafe at Any Bureaucracy: CFPB Junk Science and Indirect Auto Lending," on its website, along with 33 links to internal memos and various documents from the CFPB.
