The Consumer Financial Protection Bureau, aka CFPB, has rejected a Freedom of Information Act orequest by the National Automobile Dealers Association to release a memorandum that NADA says shows that the agency is seeking to exercise jurisdiction over auto dealers financing, which – allegedly – is prohibited under the Wall Street Reform and Consumer Protection Act of 2010, so-called Dodd-Frank.
According to a 30 June 2015 article in the industry magazine American Banker, three senior CFPB officials sent CFPB Director Richard Cordray a memo outlining how a proposed settlement with American Honda Finance Corp. would further the agency’s “goal of significantly limiting dealer discretion.”
The memo was leaked for unknown, but reasonably certain reasons. Wall Street and the financial community – the very people who brought you the Great Recession, are opposed to any government regulation over borrowing. NADA was unable to supply to AutoInformed at this time any economic data that says current practices actually reduce loan rates rather than increase them. However, the public record shows abuses. (DOJ Honda Consent Order Aims to Cut Auto Loan Abuses, Ally Settles Auto Loan Discrimination Case, Asian Auto Lending Discrimination in Los Angeles?)
The settlement against Honda and its dealers is now history. The CFPB and Department of Justice (DOJ) resolved an action with American Honda Finance Corporation that will put new measures in place to address discretionary auto loan abuses arising from pricing and compensation practices. As a result, African-American, Hispanic, Asian and Pacific Islander Borrowers will receive $24 million for past discriminatory loan rates by Honda dealers.
Honda will now substantially reduce or eliminate dealer discretion to mark-up the interest rate to only 1.25% above the buy rate for auto loans with terms of 5 years or less, and 1% for auto loans with longer terms. Honda also has the option under the order to move to non-discretionary dealer compensation.
Honda’s past practices resulted in thousands of non-white borrowers paying higher interest rates for their auto loans, without regard to their creditworthiness. As part of the order that NADA objected to, Honda will change its pricing and compensation system to substantially reduce dealer discretion and minimize the risks of discrimination that are at the core of auto loan abuses.
In a reply to NADA Chief Regulatory Counsel Paul Metrey, the CFPB’s FOIA manager said that the leaked memo was “privileged” and therefore protected from public scrutiny.
“The significant limitation of dealer discretion, which in turn reduces fair lending risk, is one of the goals we have been seeking with respect to the indirect auto matters, and this settlement proposal attains that goal,” Jeffrey S. Morrow, Jane M.E. Peterson and Rebecca J.K. Gelfond wrote in a June 16, 2015, memo to Cordray about the then proposed Honda settlement, according to American Banker.
According to a June 30, 2015, article in American Banker, three senior CFPB officials sent CFPB Director Richard Cordray a memo outlining how a proposed settlement with American Honda Finance Corp. would further the agency’s “goal” of “significantly limiting dealer discretion.”
The statement – NADA alleges – undercuts the numerous claims made by Cordray and other CFPB officials that the agency is not targeting auto dealers through enforcement actions. The leak of the memo prompted NADA to request its release under FOIA.
This week the House Financial Services Committee is scheduled to consider legislation that would rescind the CFPB’s March 2013 guidance on auto lending, which the agency has used to outline policy for dealer-assisted financing. The legislation, H.R. 1737, with 54 Democratic and 69 Republican cosponsors, would also require the CFPB when issuing guidance on indirect auto lending, to take public input and consideration of its impact on consumers as well as small, women-owned, and minority-owned businesses.
