The impact of the Consumer Financial Protection Bureau’s reach on the automotive finance industry remains a significant issue as 2014 approaches. Several of the largest lenders in the automotive finance industry were under review by the CFPB in 2013, according to filings with the Securities and Exchange Commission. The increase in reviews, and the concerns the CFPB has expressed with regard to the practices of automotive finance lenders and car dealers, is likely to cause the industry to watch for more guidance from the CFPB in 2014.
As recently as last month, the CFPB held an Auto Finance Forum to address some of the concerns held by the CFPB. Director Richard Cordray addressed certain discriminatory practices monitored by the CFPB, such as pricing mechanisms used to compensate car dealers for their work in facilitating the transaction with the consumer. The CFPB fears that fair lending risks are inherent when pricing by discretionary markup is permitted.
For example, a dealer reserve is a mechanism used whereby a small amount of interest is added to the consumer’s interest rate on an auto loan for the purpose of compensating the car dealer for facilitating the transaction. The CFPB is concerned that minorities may pay more as a consequence of the car dealer’s discretion in determining the dealer reserve with the lender.
The CFPB makes the point that laws concerning credit discrimination, such as the Equal Credit Opportunity Act, have governed consumer transactions in the automotive finance industry long before the CFPB began patrolling the industry. However, the uncertainty surrounding the extent of the CFPB’s investigations and conclusions related to automotive finance has raised concerns that the cost of credit for consumers could rise. These concerns, among others, are surely to remain prevalent in the automotive finance industry for 2014.