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Inside this issue
American Banker: Cordray Receives Semiannual Upbraiding from Republicans
CFPB Takes Heat for 'Regulation by Enforcement' to Curb Lending Bias
Bloomberg: Consumer Bureau's Cordray Jousts With Republicans Over Ally Deal
U.S. Automakers Agree to Adopt Crash-Avoidance Braking by 2022
Even U.S. Auto Safety Chief Can't Get Parts For His Recalled Takata Airbag
VW Said in Talks With U.S. Over Two Funds to Pay for Pollution
Not Since '95 Has This Happened to Used-Car Prices
Audi, Mini Score Highest in Service Department Satisfaction, J.D. Power Says
Top Stories
American Banker: Cordray Receives Semiannual Upbraiding from Republicans

Of all the controversial topics covered at the hearing, the CFPB's attempt to regulate auto dealers, including the methodology used to cite firms for unintentional bias, led to the testiest exchanges. The committee held a deposition on Tuesday of Patrice Ficklin, the head of the agency's fair lending department, as part of a Republican investigation into whether the bureau did not verify that the consumers suffered discrimination when it gave out money from the Ally settlement. Rep. Sean P. Duffy, R-Wis., pressed Cordray on the accuracy of the CFPB's data. "What percentage of accuracy do you have regarding Ally?" Duffy asked. Cordray responded, "A high degree of accuracy, [but] I can't give you what percentage."

Duffy then sought to pull Cordray in. "Is it fair to say that there are some white borrowers who may be included in your analysis and may get checks in the Ally settlement?" Cordray responded, "It is always possible and that's not unique in this area." The CFPB's method for detecting discrimination by indirect auto lenders was the subject of several stories by American Banker last year. CFPB officials have acknowledged that its methodology could overcount the potential discrimination by firms, but say they prefer that to the alternative where bias is underestimated. Cordray was also grilled on whether the CFPB had consulted with the Federal Reserve and the Federal Deposit Insurance Corp. after Ally applied for financial holding company status. Ally's former CEO, Michael Carpenter, alleged in a February New York Post article that the CFPB sought to derail its holding company application if it refused to agree to a settlement.

According to a review of internal documents by American Banker, CFPB officials were well aware of Ally's application, including that it gave them extra leverage during negotiations. If Ally did not get approval, it "could have a material adverse effect on Ally's business, resulting in operations, and financial position," CFPB officials said in an October 2013 memo directed to and signed by Cordray. "Ally may be strongly inclined to reach a timely and robust resolution of this matter if it can potentially result in [Ally Financial] successfully converting to a financial holding company."

During the hearing, Cordray remained unflappable. While not exactly denying the fact that CFPB officials were aware of the application, he said that the bureau opened its investigation into Ally more than a year and a half before the bank filed the application. Garrett ultimately resorted to a common theme of the committee's, saying to Cordray, "Are you accountable to anyone?"
Source: American Banker

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CFPB Takes Heat for 'Regulation by Enforcement' to Curb Lending Bias

“Businesses of all sizes deserve financial certainty,” said Rep. Randy Neugebauer, R-Texas to Consumer Financial Protection Bureau’s Richard Cordray, at the House Financial Services Committee Hearing on March 16, 2016. “When the federal agency routinely brings enforcement action instead of taking rulemaking, with the sole purpose of changing market behavior, it begins to look like a deliberate evasion of public notice and comment,” he said. Regulation by enforcement is most obvious and concerning in the indirect auto lending market, Neugebauer said. “It allows regulators to exercise regulatory authority outside a transparent and structured process.”

Rep. Blaine Luetkemeyer, R-Mo., added that the CFPB has used its UDAAP (unfair, deceptive or abusive acts or practices) authority as a primary enforcement tool. “When it comes to CFPB UDAAP authority, you have issued little to no guidance preventing any financial institution from any sort of predictability,” he said. “If the CFPB uses it on a case-by-case basis, isn’t that the definition of regulation by enforcement?” he asked Richard Cordray, director of the CFPB. Cordray responded: “It is difficult to know how to do more than case by case when you’re talking with cases of fraud or deceptive conduct, but we attempt to give guidance to the entire market by very specific orders that are issued in these cases. “So that everybody knows that if they’re doing this, they should stop,” Cordray continued. “If that’s called regulation by enforcement, I think its just strong deterrence, and it’s important. It’s a law and order mechanism for signaling to other actors.”

When Rep. Sean Duffy, R-Wis., asked Cordray about the accuracy of its predictions of borrower race in the Ally settlement, Cordray could not provide specific details but said the predictions have a “high degree” of accuracy. “I don’t know if anyone [in similar cases] is 100 percent accurate, but we try to get as close as we can,” Cordray said. He added that white borrowers receiving checks from the settlement fund would not be “unique in this area.” But Cordray added that the bureau found that in the Ally case, “systematically African-Americans or Hispanic borrowers in certain matters paid more.” The committee chairman, Rep. Jeb Hensarling, R-Texas, said the House panel used the same method the CFPB uses to show discrimination in auto lending to prove race among the bureau’s own staff members. Based on public name and salary information, Hensarling said, the committee found that the CFPB paid its African-American employees nearly $16,000 less than their white counterparts, “which suggests either that you are presiding over a racist organization, and if you are not, should not the same racial analysis you apply to others be applied to you.” Cordray responded that he does not know how the committee did its analysis and whether or not they accounted for the staffers’ roles or pay bands.

Rep. David Scott, D-Ga., said some Democrats on the committee are still concerned about the CFPB’s method to prove discrimination. Many white consumers with last names such as Johnson, Robinson, Smith or Scott are wondering why they are receiving settlement checks, Scott said. “That is an unintended consequence that needs to be corrected. Yet, you ignore that glaring fact and continue that process,” Scott said.

The CFPB’s actions prevent dealerships from giving consumers the best deal possible, he added. “If an African-American customer goes into a dealer and tells that dealer, ‘I can only afford a $350-a-month payment for an automobile,’” the dealer can cut his own retail margin and lower the interest rate “to meet the demands of that African-American’s budget.”

“Yet, your rule would deny that dealer, would deny that African-American customer. That is discrimination when your rule and your action deny them access to that car. These are the unintended consequences,” Scott said. “This is a legitimate business reason to allow the dealer to come in there and meet or beat that.”
Source: Automotive News

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Bloomberg: Consumer Bureau's Cordray Jousts With Republicans Over Ally Deal

“The Bureau operates with such secrecy, unaccountability and bureaucratic tyranny it would make a Soviet Commissar blush,” [Representative Jeb Hensarling of Texas, who leads the Financial Services Committee] said Tuesday in a speech where he outlined his plans. “The Bureau typifies not only the shadow regulatory system but also the unfair Washington system that Americans have come to loathe: powerful government administrators, arbitrary rules and unchecked power to punish or reward.”
Source: Bloomberg

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U.S. Automakers Agree to Adopt Crash-Avoidance Braking by 2022

Twenty major automakers will announce a voluntarily agreement to equip cars and trucks with automatic emergency-braking systems designed to detect and prevent crashes without driver action, according to two people familiar with the matter. The agreement, expected to be announced Thursday, will specify that almost all U.S. cars and trucks will include the technology by 2022, said two other people who have been briefed on the announcement. The U.S. Transportation Department and the insurance industry have been in talks since last year on voluntary commitments that would cover most new models.
Source: Bloomberg

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Even U.S. Auto Safety Chief Can't Get Parts For His Recalled Takata Airbag

Mark Rosekind, the head of the National Highway Traffic Safety Administration, knows first-hand the frustration of owning a potentially dangerous car that can’t yet be fixed. A family car normally driven by his wife has been recalled to fix a faulty Takata air bag, but like millions of others, he’s waiting for parts to make the repair, according to a story by the Associated Press. To date, 14 automakers have recalled 24 million U.S. vehicles because their airbag inflators can explode with too much force and spew shrapnel at drivers and passengers. The defect is responsible for at least 10 deaths worldwide and more than 100 injuries. It’s already the largest auto recall in the country’s history, but NHTSA has said more vehicles are likely to be recalled.
Source: Forbes

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VW Said in Talks With U.S. Over Two Funds to Pay for Pollution

Volkswagen AG is in talks with U.S. authorities to establish a national remediation fund and a separate one for California as punishment for pollution from its cars after the automaker cheated on diesel-emissions tests, said people familiar with the matter. One fund would be administered by the Environmental Protection Agency and used to promote clean transportation throughout the U.S.; the other would be run by California to promote zero-emission vehicles in the state, said the people, who asked not to be identified because the talks are private. Negotiations are continuing and many details are in flux, the people said. A deal would help settle a U.S. Department of Justice civil lawsuit and clear a key obstacle as the German automaker tries to emerge from a scandal affecting 11 million of its vehicles worldwide.
Source: Bloomberg

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Not Since '95 Has This Happened to Used-Car Prices

Remember February 1995? Bill Clinton was in his first term as president. TLC was topping the Billboard Hot 100 chart for most of the month, according to Billboard.com. UCLA was a couple months away of running the table in the NCAA Tournament. And it was the last time used-car prices dropped from their January level. Until last month, according to NADA Used Car Guide. The division of J.D. Power said February wholesale prices of vehicles up to 8 years old increased sequentially every year from 1996 through 2015. But last month, their prices fell close to 1 percent. NADA Used Guide said in its latest Guidelines report that part of the decline was due to stronger than usual later-model volume gains. In fact, there was approximately a 20-percent sequential spike in auction volume for 2014 and 2015 model-year vehicles.
Source: Auto Remarketing


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Audi, Mini Score Highest in Service Department Satisfaction, J.D. Power Says

Audi and Mini were the two winners in customer satisfaction at dealership service departments in a benchmark study that J.D. Power and Associates released [Wednesday]. Mini was the highest ranked mass-market brand in J.D. Power’s 2016 U.S. Customer Service Index Study while Audi was the top luxury brand. Mini, which finished second in last year’s study, scored an 858 on a 1,000 point scale, up from 834 in 2015. Buick, GMC, Chevrolet and Hyundai rounded out the top five. Among luxury brands, Audi scored an 874, up nine points from its third-place finish last year. Following Audi were Lexus, Cadillac, Mercedes-Benz and a tie between Jaguar and Lincoln. The study measured customer satisfaction with service at a franchised dealership for maintenance or repair work.
Source: Automotive News

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          --- Rep. Scott Garrett (R-N.J.), to CFPB Director Richard Cordray, during the director's appearance Wednesday before the House Financial Services Committee, American Banker, March 16


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