DOJ Settles Fair Lending Case against Auto Dealer

by Ballard Spahr LLP
Contact

The U.S. Department of Justice (DOJ) recently settled a fair lending lawsuit against Union Auto Sales, Inc., a California automobile dealer. This means that, once again, a DOJ attempt to use disparate impact evidence to establish that a lender engaged in a “pattern or practice” of intentional discrimination will not be tested in court.

The amended complaint alleged that there was a “statistically significant” disparity between the dealer markups charged to Asian and non-Asian borrowers; many of the non-Asian borrowers were Hispanic. In addition, the DOJ alleged that the higher rates charged to non-Asian borrowers stemmed from Union Auto’s practice of giving its employees “discretion to engage in subjective decision-making and set overages within broad parameters.” According to the complaint, the employees’ discretion “was exercised in a manner that discriminated against non-Asian borrowers.” “Markups” or “overages” are nonrisk-related finance charges added by auto dealers to the lender’s interest rate.

In the complaint, the DOJ asserted various theories for its claim that Union Auto had discriminated against borrowers on the basis of race or national origin, violating the Equal Credit Opportunity Act (ECOA). The complaint charged that Union Auto “engaged in a pattern or practice of discrimination on the basis of race or national origin.” It also charged that “the discriminatory policies and practices. . . were intentional, willful, and were implemented with reckless disregard for the rights of non-Asian and Hispanic customers.” Although the DOJ did not directly say so in the complaint, the agency presumably based its allegation of intentional discrimination on employees’ alleged knowledge of customers’ race or national origin.

The settlement requires Union Auto to pay $125,000 to compensate certain former customers and cover administrative costs. Union Auto exited the auto sales business in 2007. The consent order imposes limits on Union Auto and its principal shareholder should they re-enter the auto sales business within two years, including:

  • Pre-approval of a dealer loan pricing policy
  • Annual review of pricing decisions for ECOA compliance
  • ECOA training for owners, officers, employees, and agents who participate in pricing loans

This action appears to be part of a DOJ trend to conflate disparate impact and disparate treatment theories of ECOA liability. The DOJ’s decision not to rely exclusively on disparate impact to frame its fair lending cases could reflect its concern over the continued survival of the disparate impact theory. This term, the U.S. Supreme Court will decide whether disparate impact claims are available under the Fair Housing Act in Township of Mount Holly v. Mt. Holly Gardens Citizens in Action, Inc. A decision disallowing the use of disparate impact claims under the FHA would call into question the availability of such claims under the ECOA.

In March, the Consumer Financial Protection Bureau (CFPB) issued guidance on Indirect Auto Lending and Compliance with the Equal Credit Opportunity Act. The guidance targets dealer markups. The CFPB’s focus on indirect auto lenders is likely to generate increased referrals to the DOJ of alleged fair lending violations by both lenders and auto dealers.

The case against Union Auto was referred to the DOJ by the Federal Reserve following its fair lending examination of Nara Bank. The Federal Reserve found evidence that Nara Bank’s indirect automobile lending program discriminated against non-Asian borrowers. Union Auto originated 21 percent of the loans in Nara Bank’s indirect automobile lending program. The DOJ settled with Nara Bank in 2009.

To help consumer credit providers prepare for examinations and to prevent, manage, and defend against the increasing number of fair lending challenges, Ballard Spahr has created a Fair Lending Task Force. The task force brings together regulatory attorneys who deal with fair lending law compliance (including the preparation of fair lending assessments in advance of CFPB examinations), litigators who defend against claims of fair lending violations, and attorneys who understand the statistical analyses that underlie fair lending assessments and discrimination claims.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Ballard Spahr LLP | Attorney Advertising

Written by:

Ballard Spahr LLP
Contact
more
less

Ballard Spahr LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.
Feedback? Tell us what you think of the new jdsupra.com!