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CFPB Nears Landmark Victory Against Three Large Auto Lenders

Mon, Jul 13, 2015

Washington, District Of Columbia

Three of the nation's largest indirect auto lenders are poised to limit discretionary pricing for dealers after regulators accused them of allowing partners to mark up loans at higher rates to minorities, according to confidential documents.

In proposed consent orders obtained by American Banker, the Consumer Financial Protection Bureau is planning to cite American Honda Finance Corp., Toyota Motor Credit Corp. and Nissan Motor Acceptance Corp. beginning as early as July for unintentional discrimination.

If approved and signed, the orders would require all three firms to pay remuneration to affected consumers, but could forgo civil money penalties in return for changing how much flexibility they give dealer partners to mark up the cost of an auto loan. Though the CFPB cannot directly supervise auto dealers, it has been scrutinizing indirect auto lenders' policy of allowing price discretion to partners, arguing it often results in minorities paying more.

Under the proposed deals, Honda, Toyota and Nissan's financing arms would agree to cut the price discretion that they offer dealers by roughly half of their current rates. While sources caution that the orders could still change because they are not yet finalized, such an agreement would be a significant victory for the CFPB, which until now has struggled in its efforts to curb pricing discretion.

"If the CFPB can get the lenders to cut the caps — as unpalatable as that may be from a business perspective — you address what the CFPB sees as the systemic problem. It basically gets them closer to the fixed-rate option that the agency has pushed for," said Joe Rodriguez, of counsel at Morrison & Foerster, who formerly worked in the CFPB's fair-lending group.


Source:  American Banker