Several weeks ago, the Consumer Financial Protection Bureau (“CFPB”) issued a fair lending guidance bulletin (“Bulletin”) directed at financial institutions that make indirect automobile loans. While the Bulletin thus far has not attracted widespread public attention, in the intervening period we have reflected at greater length on the Bulletin and its implications in the fair lending arena. In our view, financial institutions of all stripes that are subject to CFPB jurisdiction—and even those that are not — are well advised to study closely the Bulletin and its implications for CFPB fair lending compliance and enforcement activities across the regulatory spectrum, because the Bulletin raises several notable — and potentially troubling — compliance and liability issues.
The Bulletin represents an aggressive approach by the CFPB to the issue of fair lending compliance and enforcement that most definitely is not limited in its impact to indirect auto lenders. The Bulletin proposes significant interpretations of Regulation B, which implements the Equal Credit Opportunity Act (“ECOA”), without following the Administrative Procedure Act (“APA”), which applies to federal agency rulemakings. Further, the guidance contradicts numerous pronouncements from CFPB officials that the CFPB intends to create a level playing field for all market participants, as the Bulletin claims not to apply to “small” lenders that are not subject to direct CFPB supervision, yet are otherwise subject to the ECOA and its implementing Regulation B. In addition, the Bulletin revives a controversial theory of disparate impact liability that private litigants and the Department of Justice (“DOJ”) began advancing in the late 1990s, raising a question of whether lenders and dealers should expect a second wave of government enforcement and private litigation actions. In turn, lenders affected by this Bulletin would do well to reexamine and, as necessary, modify their pricing practices.
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