The Consumer Financial Protection Bureau is laying the groundwork to bring enforcement actions against auto lenders that pay bounties to brokers to steer borrowers toward high-cost loans, on the grounds that the markups are discriminatory because they are steeper for minorities than for whites. "Dealer compensation should not be divorced from the ability to increase interest rates from one consumer to another," argue the Center for Responsible Lending, Consumer Federation of America, National Consumer Law Center, and other advocacy groups. However, while the Dodd-Frank Act of 2010 abolished such bounties paid to mortgage lenders, it did not establish any prohibition of markup compensation with regard to auto brokers; and as a matter of practice, the CFPB has avoided an direct ban on the industry practice. Additionally, auto lenders deal with a vast network of car dealers -- which have great influence in Congress and over which the CFPB has no direct authority. Its hope is that lenders will simply comply with the watchdog's public statements urging them to protect against anything that comes even close to bias. "Over the long term, we believe that any changes that auto lenders make in response to our recent guidance will bring greater transparency to the market about the costs of financing, and therefore greater competition," according to the regulator.
Web Link - May Require Paid Subscription