Indirect Auto Lenders Put On Notice By CFPB

The Consumer Financial Protection Bureau on Thursday reminded indirect auto lenders of their compliance responsibilities under the Equal Credit Opportunity Act (ECOA).

The Thursday bulletin was meant, in part, to clarify the CFPB’s authority to pursue auto lenders whose policies can, at times, be used to harm consumers through unlawful discrimination.

ECOA makes it illegal for a creditor to discriminate in any aspect of a credit transaction on prohibited bases including race, color, religion, national origin, sex, marital status, and age. The CFPB has authority to examine large banks, and credit unions–and their affiliates–with more than $10 billion in assets.

Indirect auto lenders often allow auto dealers to mark up the interest rates that are offered to consumers, and lenders may then share part of the revenue from that increased interest rate with the dealer, the CFPB explained. These markups can generate compensation for dealers, and give dealers the discretion to charge different rates to different consumers, without taking their creditworthiness into account. Lender policies that provide dealers with this type of discretion increase the risk of pricing disparities among consumers based on race, national origin, and potentially other prohibited bases, the CFPB said.

“Consumers should not have to pay more for a car loan simply based on their race,” CFPB Director Richard Cordray added.

To ensure they are in compliance with fair lending regulations, the CFPB recommended that indirect lenders:

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