Disparate impact investigations by CFPB

The Consumer Financial Protection Bureau (CFPB) plans to cite the captive finance arms of Honda, Toyota and Nissan for unintentional discrimination in their auto lending practices, according to a report from the publication American Banker.

The magazine says the CFPB maintains that auto lenders’ practice of letting dealerships set their own amounts of dealer reserve results in minority groups paying higher interest rates than other borrowers. That disparate impact amounts to illegal discrimination, the CFPB says.

The federal agency’s views on this are likely to have received a boost in the past week, with news of a US Supreme Court decision in a housing discrimination case last week, in which the court ruled 5-4 in support of the “disparate impact” theory.

CFPB’s views on the topic have proved controversial in the past, with the National Automobile Dealers Association, among others, questioning the methodology used to assess discrimination in auto loan pricing.

The CFPB has neither confirmed nor denied the most recent report about possible action. American Banker reports that if approved and signed, the orders would require all three firms to pay renumeration to affected consumers, but could forgo civil money penalties in return for changing how much flexibility they give dealer partners to mark up the cost of an auto loan.

A Honda spokesman confirmed that the company has been in discussions with the CFPB and the Department of Justice.

Toyota Financial said in a statement: “Because our discussions with the agencies are ongoing, it would be inappropriate to comment beyond noting that we look forward to continuing to work with them in pursuit of an outcome that serves the best interests of consumers while preserving auto finance providers’ ability to compete. We take seriously our commitment to diversity and inclusion, and that commitment extends to fair and responsible lending practices.”

“While we are in preliminary discussions with the CFPB, we are confident that we are acting in the best interest of customers,” Nissan Motor Acceptance said in a statement. “The discussions are exploratory in nature as we work to protect our customers’ ability to choose financing options that fit their specific needs and to negotiate the best rates possible.

“At Nissan, we pride ourselves on the service that we provide to all customers. With the most diverse automotive customer base in the U.S., our history reflects that we work to ensure our policies, practices and outreach are fair for all customers.”