The U.S. Consumer Financial Protection Bureau (CFPB) is under increasing pressure to provide evidence of the alleged discrimination it has found within the auto lending market.
Rep. Jeb Hensarling, R-Texas, the chairman of the House of Representatives' Financial Services Committee, recently wrote a letter to CFPB Director Richard Cordray urging the bureau to provide tangible proof of its findings. The Wall Street Journal reported that in his letter Hensarling accused the CFPB of refusing multiple requests to provide details regarding its methodology and analysis in determining how prevalent auto loan discrimination was and how frequently it was occurring at the detriment of women and minority borrowers. The committee chairman offered a March 13 deadline for the bureau to provide additional information, threatening that the committee will otherwise force the agency to issue a response by way of subpoena.
Hensarling went on to note that it has been almost a year since members of the House committee first requested additional information from the bureau, whose auto-lending investigation led to the $98 million settlement paid by Ally Bank in December for its discriminatory conduct. Ally Financial and Ally Bank were deemed guilty of charging higher interest rates for more than 200,000 Hispanic, African-American or Asian car shoppers from 2011 to 2013, with minority borrowers paying an additional $200 to $300 over the average life of their car loans. Much of the bureau's investigation had centered around the practice of indirect lending, which employs the third-party assistance of dealer-affiliated firms for an estimated 80 percent of car buyers.
But without releasing the detailed basis for its findings, the committee contends the CFPB is failing to provide the auto lending market with any guidance for how to adjust accordingly.
"By refusing to disclose this information, the bureau has deliberately deprived indirect auto lenders of any meaningful way to tailor their company's lending practices and compliance systems so as to mitigate or eliminate the fair lending risk the bureau asserts to be present," Hensarling said in his letter.
Keeping its findings under wraps
The CFPB, for its part, has yet to release a public comment or offer a response. But the notion of rampant discriminatory practices has been a sore subject for many in the auto lending industry, to which the bureau's oversight expanded in 2013. As a federal entity, the CFPB has been in existence for less than a half of a decade, formed in 2010 under the terms of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Its regulatory advancements have all been in the interest of the consumer population, but the many compliance adjustments it has forced from banks and lenders make the bureau a polarizing agency, one whose efforts in pursuing auto lenders have been roundly criticized by members on both sides of the political aisle. In early March, Hensarling's committee crafted legislation proposing a wholesale reconfiguration of the bureau's structure that included replacing Cordray - a single autonomous director - with a five-member board of decision-makers. In the meantime, it seems, the committee wants answers regarding the auto lending investigation in particular.
Hensarling noted that during a briefing of the CFPB investigation into Ally's practices in January, Cordray and other bureau officials were unwilling to answer specific questions from members of the committee. Previously, a bipartisan group of senators - 11 Republicans and 11 Democrats - headed by Sens. Bob Portman, R-Ohio, and Jeanne Shaheen, D-N.H., sent a letter to Cordray asking for an update on the details of the bureau's auto lending industry investigation. That was in October, nearly two months prior to the settlement decision between Ally and the U.S. Department of Justice.
Ally was forced to pay an $18 million penalty in addition to $80 million designated to compensating consumers, who were said to be identified by the bureau and would be contacted without having to formally apply for relief eligibility.
"We are returning $80 million to hard-working consumers who paid more for their cars or trucks based on their race or national origin," said Cordray at the time.
On each separate occasion, members of congress have made similar requests as far as the details they want to see from the CFPB's investigation. Both the senators and the committee have sought an elaboration on the methods used to identify different groups of consumers, examples of the analysis models used in the Ally probe, specifically, and a breakdown of the findings that provided the basis for the disparities discovered regarding loan terms issued disparately according to race, ethnicity or country of origin.
Bailey Wood, spokesman for the National Automobile Dealers Association, denied that any of the group's members were involved in discriminatory practices and referred to the CFPB's claim as a "toxic allegation," claiming also that the bureau continued "to withhold the secret methodology it uses" to gauge discrimination.
Given the most recent demands from the House, the secret may soon be out.