Ruggles/Banks 14 Feb 2014
AFSA 2014 Working Paper
The CFPB, created as a part of the sweeping Dodd - Frank Act, recently entered into a “consent agreement” with ALLY Bank. Penalty and restitution amounts to $98 million, plus ongoing costs mandated by the CFPB to ensure continued compliance with the “agreement.” According to the CFPB’s “methodology,” it was alleged that ALLY Bank was guilty of facilitating discriminatory lending practices that led to marginally higher interest rate markups by car dealers to certain “protected classes.”
Don’t assume that the CFPB has any direct method to identify who is a member of a “protected class.” The “methodology” used by the CFPB to determine who is and isn’t a member of a “protected class,” which is a narrow legal definition, is discussed later in this article. To call their methodology “imaginative” is an understatement. The CFPB finds fault in ALLY’s business practice of charging dealers a “Wholesale Interest Rate” and allowing them to mark it up on a case by case basis based on what can be negotiated with each borrower. This is common practice in the auto industry and lenders are referred to as a "finance source-assignees". According to the CFPB, this creates a system that imposes a “disparate impact” on certain protected classes even though there is absolutely no demonstrable intent to discriminate.
...The CFPB affects auto finance in ways hard to predict...