CFPB Auto Lending Forum Raises More Questions than Answers
In a forum hosted today by the Consumer Financial Protection Bureau (CFPB), the National Automobile Dealers Association (NADA) cautioned that the Bureau’s efforts will harm consumers by reducing the competitive benefits of dealer-assisted financing.
The event marks the first time that the CFPB has accepted any sort of public input on its March 21 ‘guidance’ that pushes lenders to end the interest rate discounts that dealerships can offer to their customers.
The CFPB is seeking to change dealer-assisted financing in a way that will most certainly increase the cost of credit and make it less available to car and truck buyers. Consumers benefit from the current system because they can shop at more than 17,000 franchised new-car dealerships that have the ability to ‘meet or beat’ the interest rates offered by their competitors. This results in auto credit that is affordable and widely available.
This spring, the CFPB—without public comment or formal rulemaking—issued fair lending ‘compliance guidance’ that pushes lenders to eliminate the ability that dealers currently have to cut into their own compensation to beat a competing offer.
“There is no place for discrimination in the car business or any other business,” said NADA President Peter Welch. But the CFPB’s solution hurts consumers more than it helps, he added.
“In the name of fair lending, the CFPB’s actions will deny consumers their right to negotiate better interest rates at a dealership,” said Welch.
Welch added that the CFPB continues to withhold information relative to the methodology it is using to determine whether statistical discrimination exists in the auto lending world. Until this information is released, there is no way to determine if its analysis is reliable. For example, it is unknown if the analysis accounts for variables such as credit score, the amount financed, term of the loan, special finance incentives, etc.
While little information has been released by the CFPB about its methodology, the agency has admitted that it never studied how its ‘guidance,’ which drives the industry to a flat fee compensation system, would affect the cost and availability of credit. NADA contends that it is in the best interest of consumers that the CFPB evaluate all alternatives that may enhance fair lending.
Click here for the NADA Fact Sheet on the CFPB’s Auto Lending Guidance.
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