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CFPB's settlement eligibility letters should have a perjury clause

When consumers who may have been overcharged on their Ally Financial auto loans receive letters from the feds about a possible payment from the settlement fund, some don’t have to identify their ethnicity. Others do. But in both cases, the forms do not include a penalty of perjury. In my opinion, they should.

The Consumer Financial Protection Bureau has been using a two-tier method when distributing funds to potentially affected borrowers. That means if borrowers’ probability of being part of a protected class is higher than 95 percent, they don’t have to do anything to receive the payment. They are asked to opt out, however, if they are not part of one of the listed minority groups.

Those with 50 to 95 percent probability have to opt in to receive payment, confirming that they are part of a protected class. To rightfully qualify for payment, the borrower or co-buyer must be African-American, Hispanic, Asian or Pacific Islander.

By December, of the 201,212 opt-out letters sent, only 0.46 percent had opted out. Of the 218,457 opt-in letters sent out by December, 47.92 percent of recipients opted in, according to a January report by the Republican staff of the House Financial Services Committee.

The CFPB chose a simple process because if it’s more complex “there’s a [higher] drop-off rate,” Cordray told the Senate Committee on Banking, Housing and Urban Affairs during a hearing last week.

According to copies of the forms and the House committee’s report, there is no penalty of perjury clause.

The CFPB should add a penalty of perjury clause in settlement eligibility letters to warn borrowers about the repercussions that come with misrepresenting race. Doing so could deter unqualified auto loan borrowers from cashing in and could increase the likelihood that those who were potentially overcharged on auto loans receive the appropriate amount from the settlement fund.

When senators asked Cordray how consumers prove they are part of a protected class, he replied, “How much specificity do you want them to provide?” adding that if the form was more complex, there would be a higher drop-off rate. The CFPB aims for a simple process so affected borrowers receive their money quickly, he said.

Sen. Tom Cotton, R-Ark., used examples of three senators on the committee who, by a method similar to the bureau’s, would be considered a minority based on name and Zip code. Each fell into the 50 to 95 percent threshold, but each was a nonminority.

Consumers “have to respond and state that they were a minority borrower,” Cordray said. If nonminority borrowers said they were part of a minority group, they would be committing fraud, he said.

The system is “reasonable for them to comply with and get their money,” Cordray said.

A penalty of perjury, however, is routinely required on federal forms, Cotton said.

The Justice Department originally insisted that the forms include a penalty of perjury, but in the end, the requirement had been “considered and rejected” by the CFPB and Department of Justice, Rebecca Gelfond, the Bureau’s deputy fair lending director, told the House committee during a December briefing.

The House Financial Services Committee’s January report said that when committee staff asked why the regulators had rejected the requirement, Gelfond said: “We are not in a position to question self-identification of race.”

If race is the basis of the CFPB’s discrimination charges against auto lenders, race should be confirmed, and letter recipients should know the consequences for falsely reporting it.

You can reach Hannah Lutz at hlutz@crain.com

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