Dealer groups charge CFPB is unresponsive

CFPB Director Richard Cordray was grilled about the AFSA study by some members of the House Financial Services Committee this month as he delivered the bureau's semiannual report.

Dealer trade groups are asking members to seek help from their elected representatives to prod the Consumer Financial Protection Bureau into responding to a lender study released last fall that was highly critical of the bureau's method of determining discrimination in auto finance.

“Having Congress on our side is a critical part of our defense against the CFPB,” Bradley Hoffman, 2015 chairman of the American International Automobile Dealers Association, wrote in a blog post on March 16. Hoffman is co-chairman of Hoffman Auto Group in East Hartford, Conn.

“While we wait for a public response ... it’s a good time for dealers to consider what damage the CFPB could do to their businesses,” he wrote. He added that if dealers host elected representatives at dealership events, the AIADA would “handle every aspect of the visit, from issuing the invitation to providing you with talking points.”

The National Automobile Dealers Association is also encouraging members to complain to Congress, spokesman Jared Allen told Automotive News. “It’s regrettable that the CFPB seems intent on continuing its go-it-alone strategy,” he said.

Allen expressed frustration over what dealer groups see as tardiness by the CFPB to reply to the study, which was released Nov. 19 by the American Financial Services Association, the lender trade group that commissioned it.

“Given that the CFPB’s guidance will cost American consumers millions of dollars every year [by potentially driving up the cost of credit] and bring economic harm to the very people it intends to help, you would think the agency would actually examine a rigorous peer-reviewed study that discredited its methodology,” Allen said.

Proxies

The CFPB maintains that lenders shouldn’t allow dealerships to charge customers with similar credit histories varying amounts for dealer reserve. Based on its analysis, the CFPB says dealer discretion in setting reserve amounts has resulted in dealerships charging minorities and other protected groups of borrowers more.

But the study, conducted by financial consultants Charles River Associates, found that the CFPB’s method of using proxies such as names, addresses and census data to assign a probability as to whether a particular consumer with a particular name and a particular address belongs to a protected class of borrowers was flawed.

According to the study, the CFPB’s method identified African-American borrowers just 24 percent of the time. The methodology also produced a lot of false positives, exaggerating the number of minorities, according to the study, which looked at about 8.2 million loans originated for new and used vehicles in 2012 and 2013.

‘We don’t agree’

CFPB Director Richard Cordray was grilled about the study by some members of the House Financial Services Committee this month as he delivered the bureau’s semiannual report.

In response to pointed questioning, Cordray said the CFPB “looked at the results pretty carefully.” But, he said, “We don’t agree with the conclusions.”

You can reach Jim Henry at autonews@autonews.com

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