At the ABA Consumer Financial Services Committee meeting earlier this week, Rick Hackett, Assistant Director of the Research, Markets and Regulations Division of the CFPB, spoke about “Discretionary Pricing in Indirect Auto Finance.” Rick made it very clear that the CFPB is sticking to its position that the disparate impact theory applies under the Equal Credit Opportunity Act. That is, of course, not news. However, in response to my question whether the CFPB may be working with the FTC to address the issue at the auto dealer level, he advised that no rulemaking is in the works (at least CFPB rulemaking). Rick added that “more will be revealed soon” but declined to say more about the nature of the upcoming revelation. In response to my partner Jeremy Rosenblum’s question asking what was meant by “soon,” Rick suggested that the upcoming revelation would likely occur in the first half of the year.
The CFPB has no supervisory or rulemaking authority over auto dealers. But, since Dodd-Frank gave the FTC rulemaking authority over auto dealers, it seems possible that the FTC is moving forward with a proposed rule. However, it was my impression that the contemplated “revelation” would more likely be some form of written guidance short of a formal rule, perhaps guidance on how the CFPB and/or FTC will assess whether there are disparate impacts worthy of further analysis and/or enforcement action. This guidance might address when a minor but statistically significant disparate impact is considered problematic and what “proxies” the agencies will use for determining race, ethnicity and gender when such information is not directly provided to creditors. (Mortgage lenders—and only mortgage lenders—are required to obtain and record such data under the Home Mortgage Disclosure Act.)
If my reading of the tea leaves is correct and guidance will be provided through informal pronouncements and/or enforcement proceedings, that would be unfortunate. As I have stated before, attempts to establish legal standards in this manner are a poor substitute for formal notice-and-comment rulemakings and the concomitant protections of the Administrative Procedures Act.