To the Consumer Financial Protection Bureau, even $1 a month is too much if it's the cost of discrimination in auto lending. Even if that discrimination is completely unintentional.
Some in the industry think there should be some wriggle room, some leeway if there's just a smidgen of a difference between the rate charged one customer and what's charged another.
"The question I get all the time is: 'How much of a difference is OK?'" said L. Jean Noonan, a partner with Hudson Cook, a Hanover, Md., law firm that specializes in consumer finance law. The answer is there is no OK amount, she said.
The CFPB says that when lenders allow dealerships to set a consumer's final interest rate by adding a cut for the store -- called dealer reserve -- the lenders create the opportunity for discrimination against minorities, women or other groups. The CFPB has "no recognized tolerance for pricing differences" no matter how small, Noonan said in a presentation last week during the Automotive News F&I Week webinars.
(For a replay of this and all F&I Week sessions, go to www.fandiweek.com.)
Noonan said that she pointed out to a CFPB official at an industry event that a small pricing difference -- say 0.1 to 0.15 percentage point -- on an auto loan could amount to only about $1 on the monthly payment.
Would that be tolerable? Noonan asked. The official's reply: "Over 50 months, that adds up to real money."
Said Noonan: "They are telling us as clearly as they could that even small differences would be considered important."