Consumer Financial Protection Bureau (CFPB) chief Richard Cordray is standing firm on his agency’s plans to fight discrimination by auto lenders.
At a forum on auto financing Thursday, he defended the agency’s effort to safeguard consumers buying cars and trucks.
“Some people end up paying more on their auto loans than their neighbors, with the difference being not their creditworthiness but their race or ethnicity,” he said, according to prepared remarks. “Such discrimination may result in millions of dollars in unjustified consumer harm every year in the auto lending industry.”
The CFPB does not have authority to regulate auto dealers, but it does have oversight of lenders who give money to people buying automobiles.
{mosads}Earlier this year, the CFPB issued a bulletin explaining that it would take action against auto lenders who change their rates for different customers. To check for discrimination, the agency said it would use a doctrine known as disparate impact, which determines that policies can be discriminatory even if they are not intended to be.
Other agencies have used the doctrine for years, but auto lenders say that it will force them to abandon some of the tools of their trade that allow them to be competitive.
“In the name of fair lending, the CFPB’s actions will deny consumers their right to negotiate better interest rates at a dealership,” Peter Welch, president of the National Automobile Dealers Association, said in a statement.
Cordray on Thursday defended his agency’s plans.
“From the perspective of a consumer disadvantaged by such practices, it makes no practical difference whether the lender consciously intended to discriminate against them – the outcome, and the harm, is the very same,” he said.
To make sure they comply with the law, Cordray said that lenders could develop strong compliance management systems to catch disparate impact cases on their own and fix the problem when it starts. He also suggested that dealers adopt “some other pricing mechanism” like a flat fee or fixed percentage to prevent the possibility that people of different races are treated differently.