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Friday, February 21, 2014

Federal Agency Should Stop Playing Guessing Games

David Ruggles

Here I'm posting a few points I made in "Federal Agency Should Stop Playing Guessing Games" published February 21st in WardsAuto.com. You can read the full article on Wards.

The Consumer Financial Protection Bureau has socked Ally Bank with $98 million in penalties and restitution requirements as part of a consent agreement stemming from unintended discrimination involving dealer-assisted car loans.

Ally facilitated discrimination, according to a CFPB analysis using “proxy methodology” that presumes to determine who is and isn’t a member of a government-designated “protected class” by means of a borrower’s first name, last name, zip code and other variables.


So here’s a solution.

First, the CFPB should provide access to their proxy methodology so dealers can analytically determine up front who is and isn’t a member of a protected class.


Second, the CFPB should prescribe exactly what special treatment it wants protected- class members to receive. It can be business as usual for everyone else.

Absent this, the CFPB should leave the current system of indirect lending alone with the understanding that the bureau’s inaccurate proxy methodology has only turned up the possibility of the miniscule potential rate markup overcharge of a third of a percent. That certainly is within the margin of error for so imperfect a system designed to identify protected-class borrowers.

If the CFPB wants to institute a protected-class database, it should do so using actual data, rather than the guesswork it has been employing so far.

A line that got lost in editing:

"I can't wait to get my "protected class" membership card for being 65 and being bald." Another deletion included a reference to "SWAG," a term not deemed appropriate for a trade publication.

Comments Welcome! There will be a lot more published on this issue in the coming days.