Editorial: Obama Consumer Bureau Lacks Data Supporting Charges of Car Lender Bias
Power Abuse: Emboldened by its shakedown of mortgage lenders, the administration is now accusing car lenders of racism. On what grounds? It refuses to say, raising suspicion of another witch hunt.
Some of the nation's largest auto lenders, including Ally Bank, are now under federal investigation for allegedly discriminating against black and Latino borrowers — a deplorable crime, if true.
The Consumer Financial Protection Bureau is heading the new crusade with help from the Justice Department. It claims it has "statistical evidence" showing car lenders and dealers marking up loan prices for minorities vs. whites. Lenders and dealers insist they're pricing for risk, not race; and if there are differences, they're explained by neutral credit factors affecting loans.
Still, the administration claims loan pricing policies that have a "disparate impact" on minorities are discriminatory — the same shaky legal ground it trod to go after home lenders. For the first time, federal civil-rights enforcers are relying on stats rather than actual acts or intent to prove racism.
While that's bad enough, the administration won't reveal the methodology it's using to find discrimination in the numbers. CFPB, the consumer bureau, is keeping its analytical formula secret.
Trade groups have asked what constitutes a "statistically significant" disparity in loan rates by race. Does a 30-basis-point gap trigger charges? Twenty? Ten? At what point is it discrimination? "CFPB refuses to release any sort of analysis or methodology as to how they reached their conclusions," National Auto Dealers Association spokesman Bailey Wood told us.
Though lawmakers largely stood by as mortgage bankers were called racists, they've defended the auto industry. Lenders and dealers weren't blamed for the crisis and were supposed to be exempt from financial reform.
So CFPB's overreach has sparked bipartisan anger. Both Republicans and Democrats have demanded the administration explain its justification for targeting car lenders. They've put their request for more specifics in writing to CFPB chief Richard Cordray no fewer than eight times, and each time he's snubbed them.
The agency's stonewalling raises suspicions it won't disclose its metrics because it knows that it will empirically show its racism charges to be false or at best half-cooked, and no different than the trumped-up claims they've made against mortgage defendants.
Only, the expanding witch hunt against car lenders is worse than the one against home lenders, which so far has extorted $100 billion in payola. The assumptions Obama's diversity cops make while sifting through the limited auto loan data are even wilder than the ones they make for mortgage stats.
National data for both auto and mortgage loans lack key borrower credit info. But unlike mortgages, the auto data don't even include the race of applicants, so investigators have to go by surnames to ID their ethnicity.
Such "proxies" are notoriously unreliable.
So not only are investigators making guesses about the credit qualifications of the applicants they're comparing, they're also making assumptions about the actual race of those applicants. While they blindly assume the whites and minorities they're grouping together have similar credit backgrounds, they can't even be sure the whites they've picked are in fact white and the minorities are in fact of color.
That's a lot of speculation for something as serious as racism charges. It's plain they lack the data to support their conclusions of discrimination. Yet they don't seem at all concerned about the negative consequences of prosecuting in error.
Not only are they unfairly damaging corporate brands, they're also raising credit costs for consumers. In the case of auto dealers, they're trying to eliminate dealer discretion in setting loan rates to meet or beat competitors, which saves car buyers money.
So far the administration's murky disparate-impact claims have kept lenders guessing and in a perpetual state of legal jeopardy, which causes them to overlend to "protected classes," regardless of risk. That's what led to the financial crisis in the first place.
In the end, the real goal isn't "racial justice," but "economic justice" — that is, redistribution of wealth.
Source: Investor's Business Daily
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