Feds could force banks to pounce on dealers

Dealerships should brace themselves for closer scrutiny on fair lending practices -- even though most stores were exempted from regulatory oversight by the Federal Reserve's new Consumer Financial Protection Bureau.

Andrew Sandler, an attorney who represents several auto lenders, says there is a new emphasis on fair lending from an entirely different quarter: the U.S. Justice Department.

Ultimately, banks could cut off dealerships whose statistics even hint at discrimination, he says.

"There's a convergence," Sandler said in a phone interview following his presentation this month at the Consumer Bankers Association's CBA Live conference in Hollywood, Fla.

"The regulators will be putting more pressure on the banks, so the banks will be putting more pressure on the dealers. At the same time, the auto lenders are -- that is, GMAC is -- subject to greater scrutiny, a much higher level of examination, because now it's a bank," he said.

The Department of Justice has put lenders on notice it will pursue discrimination in auto lending more aggressively, he said. Sandler is co-chairman of the BuckleySandler law firm in Washington.

In a June 23 speech to the Brookings Institution in Washington, Assistant Attorney General Thomas Perez noted that the Justice Department recently created a Fair Lending Unit.

Perez said the unit's first focus is on mortgage lending, but he said the unit "will address discrimination in all areas of lending," including autos.

Sandler said that in addition to a more familiar emphasis on discrimination against minorities, the Justice Department in the last couple of years also has pursued cases on behalf of so-called protected classes that a layman might not consider.

For instance, there was a marital-status case in which a lender was accused of offering better rates to married couples over singles, he said.

Dealerships need to keep track of pricing for different groups to make sure pricing is consistent, Sandler said.

All it takes to establish discrimination is a "disparate impact" on different groups, even if there's no intent to discriminate, Sandler said. He said the Justice Department before now hasn't gone after disparate-impact cases in auto lending but, he said, likely that will change.

Dealerships can expect a greater emphasis from their lenders on fair lending rules, he said. For instance, banks will probably make any caps on rates or fees a more prominent part of rate sheets provided to dealers.

In addition, there probably will be more fair lending training for dealership finance managers and more monitoring and testing of dealership loans, he said.

"The main advice dealers will be getting from lenders is to pay attention to how you are pricing to different groups," Sandler said. "Because the banks will be cutting off dealers whose numbers are of concern."