WASHINGTON -- The Consumer Financial Protection Bureau's dispute with dealers over alleged discrimination in auto lending has spilled over onto Capitol Hill.
The bureau, after finding evidence that suggests racial minorities have paid higher interest rates on loans than whites with similar credit situations, has urged lenders to pay dealerships a flat fee for arranging a loan, rather than allowing dealerships to mark up the interest rate and take a cut, known as the dealer reserve.
That has rattled dealers, many of whom use dealer reserve profits to augment new-car margins.
Rep. Terri Sewell, D-Ala., sent a letter to the bureau last week saying the agency needs to show how it found evidence of discrimination.
"Consumers must be able to shop for credit without fear of discriminatory practices, and the consistent enforcement of anti-discrimination statutes is an essential part of assuring that consumers have access to affordable credit," says the letter, which was signed by 13 of the 28 Democrats on the House Financial Services Committee.
The letter shows that Congress -- which exempted new-car dealerships from bureau oversight under the Dodd-Frank financial reform law -- has a keen interest in plans for policing auto lending.
The National Automobile Dealers Association has asked the bureau to explain how it detected the discrimination, since auto lenders are barred from collecting racial information on borrowers. The group also wants to know how the bureau ensured that credit history and income were not to blame for differences in interest rates.
The bureau has said it intends to share its methodology, which uses last names and geography to help determine the race of borrowers.
"We think it's important that these questions are being asked," an NADA spokesman said.
A bureau spokeswoman said the bureau received the letter and plans to respond.
