The Consumer Financial Protection Bureau (CFBP) has taken another step in its attempts to ensure “fair” pricing in indirect motor vehicle financing transactions. This latest development highlights the CFPB’s focus on the various types of discretion provided to dealers by banks and other motor vehicle finance companies in indirect lending transactions. The broad assumption by the CFPB appears to be that discretion always leads to discrimination.
On March 21, 2013, the CFPB issued a bulletin alerting indirect motor vehicle finance companies that policies permitting dealers to mark-up buy rates and compensate dealers for those mark-ups create incentives that may result in pricing disparities on the basis of race, national origin, gender, and other prohibited bases. The CFPB noted in the bulletin that supervisory, enforcement, or other actions may be necessary to combat the discrimination created by these pricing programs. The CFPB has again “leaned in” the motor vehicle lending space with the recent issuance of civil subpoenas to a number of banks and captive motor vehicle finance companies regarding the sale of optional extended warranties, insurance, and other add-on products. The subpoenas request data on the various add-on products sold by dealers and financed in retail installment sales transactions.
This focus on add-on products is not new to the CFPB. In July 2012, the CFPB announced it first public enforcement action: an order requiring Capital One to refund approximately $140 million to 2 million credit card customers whom it allegedly misled into buying optional add-on products. The order also required Capital One to pay a $22 million penalty to a civil penalty fund. Captive motor vehicle finance companies may wish to review this prior action by the CFPB for details on what may result from the recent subpoenas. The current focus by the CFPB on add-on products in motor vehicle sales and financing may reflect a deeper and broader dive by the CFPB into both unfair consumer sales practices, as raised in the Capital One matter, and the dealer pricing discretion concerns noted in the CFPB’s March bulletin.