They may not like it and they may have no choice, but auto lenders appear to be knuckling under to pressure from the Consumer Financial Protection Bureau to micromanage loans originated at dealerships to eliminate any unexplained variation in dealer reserve.
As Automotive News reported this week, lenders are sending dealerships letters warning about even the slightest pricing differences for legally protected classes such as minorities and women. The bureau's disparate impact theory says if protected classes pay a higher average dealer reserve than everyone else, that's discrimination, even if the difference is unintentional.
The bureau hasn't said precisely how it decides which customers belong to a protected class. The Federal Reserve uses last names to decide if a borrower is Hispanic, first names to decide if they're female, or census tracts to assume race or ethnicity. Lenders appear to be following that formula.
Tyler Corder, CEO of the Findlay Automotive Group in Henderson, Nev., says he's bothered by that methodology, which allows for uncertainty. He says his dealerships haven't received any warning letters but that he has spoken with dealers who have. He also says he's spoken with some lenders and that he's found their reactions to the CFPB troubling.
"The other thing that bothers me is the fear I perceive from the lenders about questioning the methods of the CFPB," he says. "All of the lenders I've spoken to are fearful of crossing the CFPB."