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CFPB to Hold Auto Lenders Accountable for Illegal Discriminatory Markup
Friday, March 22, 2013 6:35 AM

The Consumer Financial Protection Bureau (CFPB) released a bulletin yesterday explaining that certain lenders that offer auto loans through dealerships are responsible for unlawful, discriminatory pricing. Potentially discriminatory markups in auto lending may result in tens of millions of dollars in consumer harm each year, and the bulletin provides guidance to indirect auto lenders within the CFPB’s jurisdiction on how to address fair lending risk.

The bulletin explains how the Equal Credit Opportunity Act (ECOA) applies to indirect auto lending, as well as provides guidance for indirect auto lenders on ways to limit fair lending risk.  The ECOA makes it 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. The CFPB recommends that indirect auto lenders within its jurisdiction take steps to ensure that they are operating in compliance with fair lending laws as applied to dealer markup and compensation policies. These steps may include, but are not limited to:

  • Imposing controls on dealer markup, or otherwise revising dealer markup policies;
  • Monitoring and addressing the effects of markup policies as part of a robust fair lending compliance program; and
  • Eliminating dealer discretion to markup buy rates, and fairly compensating dealers using a different mechanism that does not result in discrimination, such as flat fees per transaction.

The bulletin is available here.

A fact sheet on the bulletin is available here.