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CFPB wants more power over auto financing to prevent discriminationby Justin King
Feds concerned that minorities are being unfairly charged higher interest rates.
The Consumer Financial Protection Bureau is calling for more power to supervise captive finance divisions of larger automakers, amid reports of discrimination against minority buyers.
The federal agency claims some lenders and dealers are charging higher interest rates for many buyers, even if the applicants qualify for more affordable loans. The practice is typical in the industry, but the regulator warns that it is being disproportionately applied to minorities.
"We need to make sure that loans offered by auto finance companies are marketed honestly and fairly," said CFPB Director Rich Cordray at a hearing. "Discriminatory markups on auto loans may result in tens of millions of dollars in consumer harm each year."
Aside from higher interest rates, the CFPB claims some dealers are crossing ethical and legal boundaries in their up-selling tactics. Lenders are also accused of repossessing vehicles when loans are still current, or posting inaccurate deficiency balances following repossession.
The agency last year squeezed a $98 million settlement from Ally Financial -- previously GM's loan division -- for violation of consumer-protection laws. Actions aimed at other players have brought $56 million in compensation for similar practices.
"In these cases, minority borrowers were paying more for their loans than similarly situated non-Hispanic white borrowers," Cordray said. "Such discrimination is wrong and deeply unfair to consumers, and we will continue to be aggressive about rooting it out of the market."
The CFPB is encouraging lenders to implement internal monitoring practices to prevent discrimination, and to eliminate dealer discretion to mark up interest rates. It is also calling for a "more intrusive" approach, via legislation and broader authority to monitor compliance.
Specifically, the proposal would allow the agency to monitor dozens of lenders that annually tally more than 10,000 loans or leases. The move appears to be aimed at finance arms of Ford, Honda, Nissan and Toyota, among others.