Regulators Scrutinize Auto Lenders Over Add-Ons

May 3, 2013
Wall Street Journal  
consumer financial protection bureau news

The Consumer Financial Protection Bureau has issued subpoenas to U.S. auto lenders over the sale of extended warranties and other financial products, expanding a civil probe that could put the brakes on the thriving vehicle-finance industry. Although such products are legal, regulators are investigating whether terms and costs -- which typically are built into the total purchase price -- are adequately disclosed. The Justice Department, meanwhile, is probing auto dealerships that make their own loans to customers with poor credit and charge higher rates, reported Jon Seward of DOJ's housing and civil-enforcement section, speaking at a May 2 panel discussion at George Mason University. Government action on the matter is expected this year, he said. The latest regulatory scrutiny on the auto-finance market follows the CFPB's warning in March that lenders should restructure their arrangements with dealers, under which they inflate interest rates on borrowers with low credit scores by as much as 2.5 percent of the loan amount. Not only do these "interest-rate markups" cost consumers $494 per new-vehicle loan on average, according to a 2011 report by the Center for Responsible Lending, but consumer advocates also charge that they discriminate against black and Latino borrowers. "Companies should be able to compete without illegally charging consumers more for a car loan because of their race or gender," a CFPB spokeswoman stated.
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