Yesterday, the CFPB, jointly with the Federal Reserve Board and the Department of Justice, held a webinar on fair lending considerations related to “indirect auto lending” programs. The presenters were Patrice Ficklin, CFPB Fair Lending Director, Maureen Yap, Special Counsel/Manager in the Fed’s Fair Lending Enforcement Section, and Coty Montag, Deputy Chief of the DOJ’s Housing and Civil Enforcement Section of the Civil Rights Division. The slides used in the webinar can be found here. (The webinar was part of the Fed’s “audio conference series on consumer compliance issues.”)
Ms. Ficklin discussed the scope of the CFPB’s supervisory and enforcement authority, the CFPB’s indirect auto lending bulletin, the indirect auto finance process and associated fair lending risks, and steps “lenders” can take to comply with the ECOA. Ms. Yap explained the process used by Fed examiners to examine for fair lending risk in indirect auto financing while Ms. Montag focused on DOJ auto lending enforcement actions.
Of particular interest was Ms. Yap’s explanation of how the Fed determines “borrowers’” race, ethnicity and gender for purposes of analyzing “loan” data. She indicated that to determine race, “loans” are geocoded to find out whether the “borrower” lives in a minority or majority census tract. To determine Hispanic ethnicity and gender, Ms. Yap indicated that the Fed uses, respectively, census lists of common Spanish surnames and common female and male first names. She also provided guides for how companies can use Excel spread sheets to identify “borrower” gender and ethnicity which can be found here.
Also of particular interest were the presenters’ responses to several questions. In response to a question about the permissibility of exceptions from pricing policies for competitive offers, Ms. Yap seemed to signal that such exceptions are permissible provided they are adequately documented to explain the reason for the pricing disparities, with such documentation to identify the source and terms of the competing offer.
Ms. Ficklin responded to a question about the consequences of statistical analyses that show unexplained pricing disparities by advising that the CFPB would not refer a matter to enforcement unless it had a level of statistical certainty at the 95% confidence level or above that the disparities were the result of discrimination on a prohibited basis. However, she noted that the CFPB might use a lower level of statistical certainty when addressing pricing disparities through the supervisory process.
Ms. Yap advised a questioner that dealer agreements should address the accuracy of data provided by dealers as well as steps to mitigate fair lending risk, presumably such as dealer monitoring and training.
Finally, in response to a question about the CFPB’s expectations regarding compliance with its auto fair lending bulletin, Ms. Ficklin made clear there is no “grace period” for compliance and that the CFPB expects companies to be currently taking the steps necessary to address the fair lending risks of “indirect auto loans.” All the more reason for companies in the indirect auto finance business to consult with qualified counsel.