US auto dealer financing troubles senators image

22 senators asked the Obama administration to answer questions regarding the battle over auto dealers financing millions of vehicles annually — and whether the federal government should impose restrictions on the transactions.

Yesterday, 22 U.S. Senators—11 Democrats and 11 Republicans— asked the Consumer Financial Protection Bureau for more answers about its guidance to auto lenders.

In March, the bureau issued fair lending guidance “widely interpreted as pressuring lenders to eliminate or severely limit an auto dealer’s discretion to negotiate competitive financing for their customers, and instead encourage lenders to compensate auto dealers through a ‘difference mechanism’ … such as a flat fee per transaction,” said the letter they addressed the Bureau.

“We support the bureau’s desire to eliminate any unlawful lending practices and are committed to ensuring that credit markets function competitively and efficiently for all consumers,” the letter said. “Although the CFPB has alleged the ‘disparate impact’ discrimination is present in the indirect auto financing market, the bureau has yet to explain its basis for this assertion.”

The senators want details on the CFPB’s statistical methodology to determine disparate impact and whether CFPB conducted a cost-benefit analysis “into how an industry adoption of flat fees as a mechanism to compensate dealers for arranging financing would affect the cost of credit for consumers, including those at the lower end of the credit spectrum.”

The bureau, created by Congress as part of the Dodd-Frank financial reform bill, has been investigating major auto lenders — including Detroit-based Ally Financial Inc — and whether minority car buyers are being treated unfairly by auto dealers. The bureau has been investigating whether minority buyers are subject to higher interest rates than white buyers.