Last week, the House Financial Services Committee sent a letter to the Consumer Financial Protection Bureau requesting documentation pertaining to the Bureau’s recent enforcement actions against three auto lenders. The Bureau was also asked to make an official available for a transcribed interview with the House. The Committee said in a press release that if the CFPB does not comply quickly, “the Committee would have no choice but to consider subpoenas.”
The letter, signed by Rep. Jeb Hensarling (R-Texas) and fellow committee member Rep. Sean Duffy (R-Wis.), expressed concern with the methodology that the CFPB employed in identifying alleged discrimination against Ally Financial, American Honda Finance Corp., and Fifth Third Bancorp. All three have drawn penalties from the CFPB within the last two years for discriminatory pricing in auto loans. None of the companies ever admitted wrongdoing, but nonetheless paid millions in penalties and restitution payments under consent orders announced by the Bureau.
What got these auto dealers in trouble with the CFPB is the so-called dealer markup, an industry practice in which auto dealers add percentage points to the base interest rate on auto loans offered to consumers by lenders. The dealer keeps the profit made off the markup. The CFPB analysis of auto loans has suggested to the Bureau that minority consumers tend to get charged higher dealer markups, which would put those dealers at odds with antidiscrimination laws.
However, there are many in government and in industry who question the CFPB’s analysis of this data and therefore the fairness of the enforcement actions. The information the House seeks would shed light on the issue. Because it is illegal for lenders to collect racial data on auto loans, the CFPB has to employ an imprecise methodology in their analysis. This methodology uses ZIP codes and last names to estimate which borrowers are minorities. The committee’s letter cited articles in trade publications that suggest “the Bureau knowingly over-estimates disparities when identifying alleged discrimination” on auto loans.
The CFPB has previously admitted that the analytical methodology they employ can exaggerate disparities when applied to home mortgages, but claim that such errors are insignificant when applied to auto loans. The House letter indicates that many in government are not convinced. In a statement, a CFPB representative said the Bureau “will continue working closely with the Committee.” The House has asked pointedly for the requested documents by October 20.