Excerpts from NADA Front Page; comments by Ruggles follow
More than 400 franchised auto dealers weighed in with Washington lawmakers earlier this week on the Consumer Financial Protection Bureau’s (CFPB) effort to end the discounts that customers can negotiate when financing a car or truck through a dealership. The visits to Capitol Hill were organized as a part of the National Automobile Dealers Association’s Washington Conference.
Dealers asked their senators to sign the letter authored by Sens. Rob Portman, R-Ohio, and Jeanne Shaheen, D-N.H., requesting that the bureau explain how eliminating a dealer’s ability to “meet or beat” a competitor’s rate is good for consumers.
A key ally in the dealers’ fight, Rep. Gary Peters, D-Mich., told the dealers in a speech on Thursday that he’s “very concerned” about the CFPB’s recent effort to alter the $800 billion auto finance marketplace without a hearing or offering analysis for public scrutiny.
“I believe it’s absolutely essential that we have a very competitive marketplace so that folks can get the lowest rate they can for their loans, and certainly dealer-assisted financing is about that,” said Peters, who along with 12 Democrats on the House Financial Services Committee sent a letter to the CFPB demanding greater transparency.
“The CFPB has not provided any information about its study or how they compare the numerous factors that can affect auto interest rates,” said NADA Chairman Dave Westcott, a new-car dealer in Burlington, N.C. “Even more shockingly, the bureau failed to examine how this change could impact the cost of credit for consumers. In-dealership financing has been enormously successful in both increasing access to credit, and reducing the cost for millions of Americans.”
Ivette Rivera, NADA vice president of legislative affairs, said that senators were receptive to the dealer’s request to sign on to the Portman-Shaheen Auto Finance letter.
“Early reports from our Hill meetings indicate that members of Congress on both sides of the aisle think that greater transparency from the CFPB is needed,” Rivera added.
Ruggles writes: The issue is over dealer "rate participation." Dealers "buy" money from lenders at "wholesale, and distribute it at "retail." The CFPB alleges that all consumers aren't treated equally. They have set out to regulate dealer rate participation via a proxy strategy. Using laws against discrimination and an obtuse theory called "disparate impact," the CFPB seems to want to abolish rate participation and replace it with some kind of a flat fee arrangement.
WIKI on the subject:
"In United States employment law, the doctrine of disparate impact holds that employment practices may be considered discriminatory and illegal if they have a disproportionate "adverse impact" on members of a minority group. Under the doctrine, a violation of Title VII of the 1964 Civil Rights Act may be proven by showing that an employment practice or policy has a disproportionately adverse effect on members of the protected class as compared with non-members of the protected class.
The doctrine prohibits employers "from using a facially neutral employment practice that has an unjustified adverse impact on members of a protected class. A facially neutral employment practice is one that does not appear to be discriminatory on its face; rather it is one that is discriminatory in its application or effect." Where a disparate impact is shown, the plaintiff can prevail without the necessity of showing intentional discrimination unless the defendant employer demonstrates that the practice or policy in question has a demonstrable relationship to the requirements of the job in question. This is the so-called "business necessity" defense.
Disparate impact contrasts with disparate treatment. A disparate impact is unintentional, whereas a disparate treatment is an intentional decision to treat people differently based on their race or other protected characteristics."
Ruggles again: Even though disparate impact pertains to employment law, the CFPB, along with the FTC and the DOJ, have chosen the theory to try to bully the auto financing industry. What is especially interesting is how the CFPB proposes to determine how one is a member of a "protected class." They propose to use zip codes and surnames, along with other data they are less than transparent about.
A recent decision in California was settled where a Mitsubishi dealership was alleged to have provided better interest rates to Asians, than to the general population.