BMO Harris Bank is now the first indirect auto lender to adopt a flat-fee structure, which limits the flexibility among dealers to price finance loans. The decision reportedly is related to a Consumer Financial Protection Bureau (CFPB) bulletin last year that warned lenders of possible citations for discrimination if they did business with dealers that marked up interest rates on loans to protected legal classes of borrowers, such as minorities.
"It is encouraging to see BMO Harris taking this proactive step to protect consumers from discrimination," said CFPB director Richard Cordray. "When people go to buy a car, they should not have to worry whether they'll pay more for their auto loan because of their race, gender, or ethnic background."
Many dealers and auto lenders have argued that a flat-fee system would be detrimental to consumers. CFPB officials insist they are not trying to force adoption of a flat-fee structure, but only want dealers to consider pricing alternatives. The regulator has promoted flat fees as a way to eliminate potential risk in dealer discretion that could create higher costs for some borrowers. Indirect auto lenders counter that a flat-fee structure eliminates the borrower's ability to negotiate at the dealership.