CFPB Brings First ECOA Disparate Impact Action Post-Inclusive Communities

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Just over 18 months after bringing a disparate impact-based ECOA case against Ally Financial (“Ally”) for discriminatory auto loan pricing, the CFPB has struck again—this time taking action against American Honda Finance Corporation (“Honda”). Like Ally, Honda stands accused of discriminatory auto loan pricing stemming from the company’s discretionary pricing and dealer compensation practices, i.e., allowing auto dealers to mark up its risk-based interest rate. Interestingly, however, unlike Ally, Honda was not assessed civil money penalties for its actions. Rather, the CFPB credited the company’s agreement to reduce its dealer markup cap from as high as 2.25% to as low as 1.00% (depending on the term of the loan) as the reason such penalties were not assessed. The CFPB’s December 2013 consent order against Ally had no such provision regarding dealer markup cap reductions.

It’s likely no coincidence that the Bureau announced a high profile disparate impact case less than a month after the Supreme Court upheld the doctrine’s use in regard to the Fair Housing Act in Inclusive Communities Project, Inc. v. Texas Department of Housing and Community Affairs, No. 13-1371, 572 U.S. __ (2015). That case was seen as a bellwether for a potential disparate impact challenge under the ECOA, and the Supreme Court’s decision upholding the doctrine has undoubtedly provided the Bureau with some comfort regarding its use.

It remains to be seen if this is the first of many similar actions in the enforcement pipeline for the CFPB, and whether the trade-off of civil money penalties for markup cap reductions is a one-time occurrence or the start of a trend.

The consent order against Honda can be found here.

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