Hunt for discrimination could go beyond margins

Regulators might perceive discrimination in F&I product practices besides the pricing margins challenged by the FTC in the recent Napleton Automotive Group case, according to compliance experts.

One attorney, Alston & Bird partner John Redding, told Automotive News that officials investigating lenders might have an easier time finding other forms of what they would consider to be discrimination.

The Federal Trade Commission in a March 31 complaint alleged Napleton charged Black customers $99 more on average for finance and insurance product packages than it did similar white patrons. Napleton settled the complaint and other allegations for $10 million but "vehemently" denied any wrongdoing.

Redding told the Auto Finance Risk Summit in San Diego in April that the ability of a lender to defend a similar allegation — or get to a settlement it could live with — might hinge on its ability to show these outcomes demonstrated mere correlation rather than a true cause-and-effect relationship.

Redding said it's possible lenders' regulators could further target F&I pricing results within the auto retail space.

But the Consumer Financial Protection Bureau would be more interested in whether protected classes bought more F&I products from dealerships than unprotected classes and, if so, defaulted at a higher rate, according to Redding.

"That's going to be an interesting one to watch," Redding said, adding the issue has been on the CFPB's radar for years.

"Under [CFPB Director Rohit] Chopra, I will tell you that they're very interested," he said.

Redding told Automotive News that the CFPB, which regulates lenders but not dealers, could look at a lender's portfolio for answers to these questions.

The pricing issue was more difficult to track looking at a lender's books, Redding said. An F&I product's cost might be offset during the dealership transaction, such as with a down payment, making it harder to deduce a dealership's margin, he said.

"If markup numbers were readily available, I would not be shocked to see them try that. But I think it would be harder to make such a case against the lenders since they will not necessarily have the wholesale price at which the dealer purchased the product," he wrote in an email last month.

Ignite Consulting Partners compliance attorney Randy Henrick stressed dealerships' product pricing exposure during the Ethical F&I Managers Conference in Denver last month.

But he also proposed officials might check whether vehicle protection product claims histories differ for protected demographic classes.

"That's something that you product providers are gonna need to look at," Henrick said.