On August 2, the CFPB responded to a letter submitted by 35 republican members of Congress who are concerned about the fair lending guidance the CFPB issued to indirect auto lenders earlier this year. The bulletin, issued in March, confirmed the CFPB’s position that indirect auto finance companies are “creditors” subject to the fair lending requirements of ECOA and Regulation B and specifically addressed the risk of discrimination allegedly caused by discretionary dealer participation and compensation policies, concluding that indirect auto finance companies may be liable under the legal theories of both disparate treatment and disparate impact when pricing disparities on a prohibited basis exist within their portfolios. The members criticized the CFPB’s lack of transparency and accountability in issuing the guidance “without a public hearing, without public comment, and without releasing the data, methodology, or analysis it relied upon to support such an important change in policy” and requested that the CFPB provide full details of the statistical disparate impact methodology used to support the bulletin’s directives.
The CFPB’s response letter affirms its indirect auto lending guidance, stating that the Bureau perceives frequent lack of fair lending compliance programs associated with this type of consumer lending despite Bureau’s assertion that ECOA applies to all credit transactions. The CFPB further asserts that the notice-and-comment rulemaking process was not necessary for the bulletin, because the Administrative Procedure Act — which sets out the basic principles that apply to regulatory activity by federal agencies — does not require notice and comment for “general statements of policy, non-binding information guidelines, or interpretive memoranda.” The letter also explains that because data about race, ethnicity, and gender is not typically collected in auto finance transactions, the CFPB employs a proxy methodology using surname and geographic location to identify potential pricing disparities affecting protected classes. In support of its approach, the CFPB asserts that use of proxies for unavailable data is generally accepted and maintains that disparities will be considered “in view of all other evidence,” including the finance companies’ own analysis. The CFPB emphasized that “each supervisory examination or enforcement investigation is based on the particular facts presented” and that the CFPB “typically look[s] to whether there is a statistically significant basis point disparity in dealer markups received by the prohibited basis group.” Lastly, the letter reiterates the CFPB’s ongoing coordination with other federal agencies to ensure that fair lending supervision and enforcement is “consistent, efficient, and effective.”