Tag Archive | "CFPB"

New AFSA Study Refutes CFPB Allegations

WASHINGTON, D.C. – The American Financial Services Association offered its latest rebuttal this morning to contentions by the Consumer Financial Protection Bureau about problems with the indirect auto financing process, reported Auto Remarketing.

A comprehensive study commissioned by AFSA of more than 8.2 million auto financing contracts found that the disparity alleged by the CFPB between the amount of dealer reserve charged to minorities and non-minorities is not supported by data.

The study titled, “Fair Lending: Implications for the Indirect Auto Finance Market,” examined the proxy methodology used by the CFPB and found significant bias and high error rates.

“AFSA is committed to ensuring all consumers are treated fairly. AFSA’s results are much lower than what the CFPB alleges as problematic in the marketplace, because the association’s study factored in complexities of the automotive market that the CFPB did not consider, and errors associated with the CFPB methodology,” AFSA president and chief executive officer Chris Stinebert said.

“The interplay between factors such as geography, new versus used, length of loan, down payment, trade-in vehicle, credit score and competitive factors, such as meeting or beating a competing offer, is evidence of a dynamic market,” Stinebert continued.

AFSA explained that central to the study was an examination of the Bayesian Improved Surname Geocoding (BISG) proxy methodology used by the CFPB to determine disparate impact to legally protected groups.

Officials pointed out that BISG estimates race and ethnicity based on an applicant’s name and census data. AFSA’s study calculated BISG probabilities against a test population of mortgage data, where race and ethnicity are known.

Among the findings:

  • When the proxy uses an 80 percent probability that a person belongs to an African-American group, the proxy correctly identified their race less than 25 percent of the time.
  • Applying BISG on a continuous method overestimates the disparities and the amount of alleged harm and provides no ability to identify which contracts are associated with the allegedly harmed consumers.

“Alleged pricing discrepancies between minorities and non-minorities for auto financing rates are simply not supported by data,” Stinebert said.

“We have reviewed our study results with the CFPB and look forward to continuing our work with the bureau to address the issues we raised and to ensure consumers have access to affordable credit,” he went on to say.

Conducted by consultants at Charles River Associates, the study examined 30 percent of all new and 10 percent of all used retail installment contracts financed during 2012 and 2013.

The complete study is available on the AFSA website.

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Comment Period Opens for CFPB’s New Rule

WASHINGTON, D.C. — The Consumer Financial Protection Bureau (CFPB)’s proposed rule that would give it supervisory authority over larger participants in the nonbank auto finance segment was published in the Federal Register on Oct. 8, kicking off a 60-day public comment period that ends on Dec. 8.

If adopted, the proposed rule would generally allow the CFPB to supervise nonbank auto finance companies that make, acquire, or refinance 10,000 or more loans or leases in a year. The bureau has estimated that about 38 auto finance companies, which originate around 90% of nonbank auto loans and leases, would be subject to this oversight.

“Nonbank auto finance companies extend hundreds of billions of dollars in credit to American consumers, yet they have never been subject to any supervisory oversight at the federal level,” CFPB Director Richard Cordray said at an auto finance hearing on Sept. 18. “These companies have also played a significant role in the growth of subprime auto lending by making loans to consumers with lower credit scores. In this market, as in others, subprime borrowers may be more vulnerable to predatory practices, so direct oversight of their lending practices is essential.”

The CFPB began regulating the auto finance market in March 2013, when it issued a bulletin stating that lenders that offer auto loans through dealerships will be held responsible for discriminatory rate markups on retail installment sales contracts. The regulator has also expressed interest in the marketing of loans and leases, the accuracy of information given to credit bureaus, and the treatment of consumers during debt collection.

The proposed rule is the fifth in a series of rulemaking to define larger participants in consumer financial markets.

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Chrysler Capital, Santander Lower Cap on Dealer Participation

Chrysler Capital notified dealers on Sept. 26 that it is reducing its cap on dealer participation from two points to 1.75 points. Four days later, the company behind Chrysler Capital, Santander, said it is also reducing the cap to 1.75 points.

The change, which took effect on Oct. 1, comes more than two weeks after the Consumer Financial Protection Bureau (CFPB) proposed to oversee larger nonbank auto finance sources for the first time at the federal level. And both Chrysler Capital and Santander would fit the bill, ranking No. 9 and 10 on Experian Automotive’s second quarter list of top auto finance sources by market share.

Obtained by F&I and Showroom, the two dealer notices, however, make no mention of the CFPB. “Chrysler Capital watches current market conditions very carefully and we feel this change puts us in line with many other lenders who have chosen to limit dealer participation below two points,” the finance source’s notice stated.

Santander stated in its notice: “This is a basic change is not unlike any modification that SAF makes to pricing and policies regarding any of our programs.”

A spokesperson with Santander declined to comment, while Chrysler Capital did not respond to requests for comment.

In its recently released Supervisory Highlights report, which details auto-lending discrimination the CFPB has uncovered in the last two years, the bureau stated that its activities suggest that finance sources could limit pricing disparities and fair lending risks by capping dealer markups at 100 basis points.

“An institution that implements significant limits on discretionary pricing may find that it can significantly reduce certain compliance management activities, such as dealer-specific monitoring and discipline, to which the institution would otherwise need to devote significant attention and resources,” the bureau stated in its report, in part.

The two finance sources, however, didn’t go that far. And according to the National Automobile Dealers Association (NADA), the average dealer participation rate falls below the finance sources’ reduced caps and the bureau’s suggested cap.

In March 2013, the CFPB issued guidance regarding a dealer’s ability to discount interest rates offered to consumers who finance their vehicle purchases. The CFPB claimed that negotiated interest rates between dealers and their customers create a significant risk of unintentional “disparate impact” discrimination. But according to the NADA, there are a variety of legitimate business-related factors that can affect finance rates, such as beating a competing rate.

This past January, the NADA released its Fair Credit Compliance Policy & Program based on a mitigation model developed in 2007 by the Department of Justice. The program was offered as a way to address the bureau’s concerns and requirements detailed in its March 2013 bulletin.

“The NADA’s Fair Credit Compliance Policy & Program remains a very viable option for dealers to address potential fair credit risks,” read a statement the NADA issued to F&I and Showroom. “The NADA has put forth a solution. It’s a voluntary program for dealers to address potential risks in indirect auto lending while preserving the robust competition for car buying in the auto finance marketplace.”

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CFPB Lacks Proper Data Security, Report Says

WASHINGTON, D.C. — In a report released Sept. 22, the United States Government Accountability Office (GAO) found that while the Consumer Financial Protection Bureau (CFPB) has taken steps to secure the data it has collected — including records from automobile sales, consumer credit report information, credit cards, credit scores, mortgages and student loans — the bureau is lacking in written policies and procedures for data privacy, as well as the ability to assess risk.

The report, requested by U.S. Banking Committee Ranking Member Mike Crapo (R-Idaho), found that the CFPB has account-level access to credit card data on between 546-596 million consumer accounts on a monthly basis, representing consumer data covering 87% of the credit card market.

“The CFPB’s massive data collection effort is an unwarranted, unwelcome intrusion into the private financial lives of millions of Americans,” Crapo said in a press release issued Monday. “This GAO report confirms what the Bureau would not — that it has been collecting information on up to 600 million American financial accounts, and it does not have the proper safeguards in place to protect the information it is collecting.

“At a time when data and identity-related crimes are at an all-time high, the last thing the American people need is one more federal agency collecting their private financial information,” he added.

Some of the data collected includes personal identifiers such as arbitration case records, storefront payday loan activity and records on the use of deposit advance products. In its report, the GAO recommended that the bureau develop written procedures and comprehensive documentation for data intake and security risk assessments to avoid inconsistent application of its practices.

“For example, [the] CFPB unnecessarily retained sensitive data in two collections GAO reviewed, but its staff said they plan to remove this information,” the report read, in part.

The bureau, which recently proposed a new rule that would allow it to oversee about 38 nonbank auto finance companies, also collects vehicle transaction-level data from 46 state motor vehicle departments matched with consumer credit data. This encompasses about 700,000 vehicles per month.

The GAO report also noted that the CFPB has not fully implemented a number of privacy control and information security practices, and has failed to submit its credit card data collection plan to the Office of Management and Budget for approval, which is required under the Paperwork Reduction Act.

“There are many outstanding questions and concerns following this report,” Crapo said. “For example, it is still unclear exactly what information the CFPB is collecting, how they are using it, and whether it can be easily reverse-engineered to identify an individual. I consider these to be very serious concerns at the very agency that was supposed to watch out for consumers, not watch them.”

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NADA Refutes CFPB Proxy Methodology Report

McLEAN, Va. – In response to the Consumer Financial Protection Bureau’s white paper released last week concerning the use of proxy methodology to identify potential discrimination in indirect auto financing, the National Automobile Dealers Association issued a four point rebuttal:

  • The scope of CFPB’s white paper is very limited. It is confined to an analysis of how the CFPB determines the probability that a consumer is a member of a particular group. It does not address how the CFPB uses those probabilities to calculate either pricing disparities or the margin of error surrounding those disparities.
  • The CFPB’s white paper also does not address the essential question of what analytical controls the CFPB uses to ensure the consumers it is comparing are “similarly situated.”
  • With regard to probabilities, the CFPB’s testing indicates that, frequently, its proxy method, Bayesian Improved Surname Geocoding (BISG), fails to accurately reflect the consumer’s actual race or ethnicity.
  • Importantly, the white paper does not reveal how the CFPB corrects these problems to ensure its classification of consumers is accurate.

“Concerning the CFPB’s proxy methodology report, many of the questions that Congress and others have asked remain unanswered,” said NADA, the National Association of Minority Automobile Dealers and the American International Automobile Dealers Association in a statement last week. “We look forward to rigorous peer review to ensure that the tools the CFPB is using to address fair credit concerns may actually accomplish its goals.”

In March 2013, the CFPB issued guidance that threatens to eliminate the flexibility of dealers to discount the interest rate offered to consumers to finance vehicle purchases. The CFPB claims that negotiated interest rates between dealers and their customers create a significant risk of unintentional “disparate impact” discrimination.

“There are legitimate, market-based reasons for disparities in interest rates – from monthly budget constraints, to the presence of more competitive offers, to inventory reduction considerations – all of which are nondiscriminatory and all of which can be documented in the transaction,” added NADA, NAMAD and AIADA, the three trade groups that represent U.S. new-car dealers.

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Bill to Rescind CFPB Auto Lending ‘Guidance’ Gains Support in Congress

WASHINGTON – More than 400 new-car dealers and dealer association executives from across the country traveled to the nation’s capital last week urging lawmakers to support a new bipartisan bill that nullifies the Consumer Financial Protection Bureau’s flawed “guidance” on auto lending (NADA).

H.R. 5403 – Reforming CFPB Indirect Auto Financing Guidance Act – sponsored by Reps. Marlin Stutzman (R-Ind.) and Ed Perlmutter (D-Colo.), already has 50 cosponsors in the House since the bill was introduced on September 8. The bill is a narrower version of H.R. 4811, which was reported out of the House Financial Services Committee by a bipartisan vote of 35-24 in June.

“[Dealers] are such an important part of the economy,” Rep. Stutzman told attendees at the 2014 National Automobile Dealers Association’s (NADA) Washington Conference on September 10. “The CFPB is one of the most unaccountable agencies in the federal government,” he added.

The Stutzman-Perlmutter bill requires the CFPB to provide a public comment period before reissuing any guidance on auto finance. The bill also requires transparency and accountability from the agency by making public any studies, data and analyses used to determine future auto finance guidance.

In remarks to his fellow dealers in the audience at the two-day legislative conference, Rep. Mike Kelly (R-Pa.), who played football at the University of Notre Dame, sounded every bit like a head coach talking to his team. In a passionate tone, he urged dealers to stand together, invite Members of Congress to visit their dealerships and become more active in the political process by “getting good people elected.”

Kelly, a multifranchise dealer in Butler, Pa., added that there are a lot of marginal customers who benefit from dealer-assisted financing and that officials from the CFPB do not understand the dealership business.

“[The Stutzman-Perlmutter bill] is incredibly important to us,” Kelly said.

Sen. Jerry Moran (R-Kan.) told dealers that Democrats and Republicans should come together to oversee the CFPB.

In March 2013, the CFPB issued guidance that threatens to eliminate the flexibility of dealers to discount the interest rate offered to consumers to finance vehicle purchases. The CFPB claims that negotiated interest rates between dealers and their customers create a significant risk of unintentional “disparate impact” discrimination. However, there are a variety of legitimate business-related factors that can affect finance rates, such as beating a competing rate.

NADA Chairman Forrest McConnell in comments during the general session highlighted NADA’s recent legislative accomplishments and outlined the challenges ahead.

“In the past year, NADA helped repeal outdated bills that were time-takers and money-wasters,” said McConnell, a Honda/Acura dealer in Montgomery, Ala. “We’ve led the charge against harmful tax reform proposals, including LIFO, heavy-duty truck excise taxes and broad recall legislation on rental vehicles.”

Other speakers included House Minority Whip Steny Hoyer (D-Md.); Rep. Jamie Herrera Beutler (R-Wash.); NADA President Peter Welch; Jeff Carlson, chairman of the NADA’s Dealers Election Action Committee and a Ford and Subaru dealer in Glenwood Springs, Colo.; and political analyst Charlie Cook.

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