Although the Consumer Financial Protection Bureau’s 2013 bulletin on dealer markup is deemed “offensive” by many in the industry, a Senate bill introduced last month to eliminate it is “not going to change much,” said John Redding, partner at Buckley Sandler LLP.
Sen. Jerry Moran (R-KS) quietly introduced the bill, which seeks to eliminate CFPB caps on how much dealers are allowed to increase interest rates on indirect auto loans. The bill could be up for a vote as early as this week, AFN previously reported.
“The industry, since the day [the bulletin] was published, has pushed back on it, and I completely understand why, given what we saw with the investigations, settlements, and four consent orders that took place,” Redding told Auto Finance News.
The rule was designed to eliminate or lessen racial discrimination at dealerships, however a February study from the National Fair Housing Alliance found that non-white testers were subject to discriminatory treatment and pricing “at an alarming rate.” The study of a small sample of dealerships in Virginia found that a majority of non-white borrowers paid an average of $2,662 more for a new vehicle over the life of a loan, despite being more creditworthy than their white counterparts.
The CFPB’s bulletin initially was just a restatement of laws already found in the Equal Credit Opportunity Act, however, it has since been made a rule subject to Congressional approval.
“If you get rid of the bulletin, I’m not sure it changes a whole lot at the bureau except for the ability of industry to point at the bulletin and say, ‘I did everything you told me to do in your rule, and yet you are coming after me for doing exactly that.’” It’s unclear how many lenders have switched to lower dealer markup caps, and the pursuit to eliminate the bulletin may have more to do with the fact that the “industry has found it offensive that [lenders] are responsible at the finance source level for actions that they don’t undertake,” Redding said.Like This Post