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Thursday, September 26, 2013

Auto Dealers Take CFPB Issues to Washington DC

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.