CFPB: March 2013 Roundup

Did a customer file a complaint against you in the past year? If so, now everyone knows (or could know). The CFPB released even more complaint data on its website and is encouraging consumers to review and manipulate the data, as well as share it.

Additionally, the CFPB issued a targeted fair lending bulletin addressing concerns related to potential disparate impact in the automobile lending industry.

FAIR LENDING

In April 2012, the CFPB issued Bulletin 2012-04, which articulated the Bureau's perspective that a claim of ECOA discrimination can be proven via disparate impact. Nearly one year later, on March 21, the CFPB released Bulletin 2013-02 addressing the issue of disparate impact within the indirect automobile lending industry.

By way of background, when a car purchaser seeks financing, a dealer may provide that financing directly or it may facilitate indirect financing by a third party such as a depository institution, a nonbank affiliate of a depository institution, an independent nonbank, or a "captive" nonbank (a lender whose primary business is to finance the purchase of a specific manufacturer's automobiles).

Based on its supervisory experience, the CFPB believes that because of the incentives created and discretion permitted in the indirect lending model, there is a significant risk that they will result in pricing disparities on the basis of race, national origin, and potentially other prohibited bases.

ECOA defines a "creditor" to include not only "any person who regularly extends, renews, or continues credit," but also "any assignee of an original creditor who participates in the decision to extend, renew, or continue credit." Regulation B further provides that "creditor" means "a person, who, in the ordinary course of business, regularly participates in the decision of whether or not to extend credit" and expressly includes an "assignee, transferee, or subrogee who so participates." And the Commentary provides that a "creditor" "includes all persons participating in the credit decision" and that "[t]his may include an assignee or a potential purchaser of the obligation who influences the credit decision by indicating whether or not it will purchase the obligation if the transaction is consummated."

Institutions subject to CFPB jurisdiction (regardless of whether the CFPB has supervisory authority over the lender), including indirect lenders, should take steps to ensure that they are operating in compliance with the ECOA and Regulation B with respect to dealer markup and compensation policies. These steps may include, but are not limited to:

Dealer Controls. Imposing controls on dealer markup and compensation policies, or otherwise revising dealer markup and compensation policies, and also monitoring and addressing the effects of those policies to address unexplained pricing disparities on prohibited bases; or eliminating dealer discretion to mark up buy rates and fairly compensating dealers using another mechanism, such as a flat fee per transaction, that does not result in discrimination. Fair Lending CMS. Developing a robust fair lending...