The Consumer Financial Protection Bureau (CFPB) and the Justice Department are investigating the lending operations of several major auto manufacturers, looking for possible discrimination. Toyota Motor Credit Corp. reported in a Sept. 13 regulatory filing that the CFPB and DOJ sought information from it “and other auto finance providers” about pricing practices for loans. Companies could face unspecified legal action if found in violation of the Equal Credit Opportunity Act, a 1974 law that bans lending bias. American Honda Finance Corp. has also received a similar request, noting that enforcement action is possible.
As many as five other auto lenders affiliated with manufacturers have received requests for data that may be related to borrowers’ racial background. The CFPB and DOJ are seeking data about a practice known as “dealer markup,” under which lenders work indirectly by allowing dealers to inflate the interest rate and pocket the difference. Consumer groups argue that the practice gives dealers an incentive to encourage buyers to take out more expensive loans. The CFPB already warned banks that they could face enforcement action if they fund discriminatory vehicle loans made by dealers. Last year, it indicated that it would apply the legal doctrine “disparate impact” to consumer financial products -- meaning that lenders can be sanctioned for actions that have a discriminatory effect, even without an intention to discriminate.