The Consumer Financial Protection Bureau has ignored a congressional deadline to specify how it determines discrimination in auto lending.
The House Financial Services Committee sent CFPB Director Richard Cordray a sharply worded letter on March 7 requesting in no uncertain terms answers to a list of questions concerning the CFPB’s specific methodology for determining that a disparate impact, or higher interest rates for minorities, has occurred in auto lending.
In the letter, Committee Chairman Jeb Hensarling, R-Texas, accused the CFPB of a “pattern of obfuscation” and gave the CFPB one week, until March 13, to answer. The deadline came and went with no response from the CFPB, a committee spokesman confirmed as of press time today.
The committee’s next action remains uncertain. Options available include using subpoena power to compel an answer, according to attorney John L. Culhane Jr., a partner at Ballard Spahr law firm in Philadelphia. The firm’s clients include auto lenders.
The CFPB maintains that auto lenders permit discrimination by allowing dealerships discretion in setting the dealer reserve on auto loans. The dealer reserve is the small amount of interest that dealerships add to the lender’s buy rate as compensation for arranging the loan
According to the CFPB, the net result can be a so-called disparate impact -- that is, slightly higher rates for legally protected borrowers, including minorities. Lender and dealer groups deny tolerating discrimination and question the CFPB’s methodology for identifying discrimination.
Hensarling said in the letter to Cordray that on several occasions, the CFPB has ignored or provided incomplete answers to direct questions from Congress about the CFPB’s methods for determining disparate impact. In general terms, the CFPB has said it uses proxies to determine which borrowers are members of legally protected minority groups.