A coalition representing auto lenders says a federal agency should admit it is wrong.

The group in a letter to the Consumer Financial Protection Bureau asks it to address its alleged bias and error in an analysis it uses to determine whether disparate impact, or unintentional discrimination, exists in a lender’s portfolio.

The coalition says the methodology is flawed, yet the bureau keeps relying on it.

Since 2013, the CFPB has urged lenders to change how they compensate auto dealers for arranging financing. The bureau alleges that disparate impact sometimes results from dealer reserve, a practice in which dealers typically add a percentage point or two to a car loan’s interest rate as compensation for arranging the third-party loan.

But a 2014 study by Charles River Associates says the CFPB’s analysis overstates how that practice affects ethnic minorities. The American Financial Services Assn. commissioned the study.

The coalition letter calls on the CFPB to revisit its enforcement approach, provide a public response to its findings and recommendations and correct testing- methodology bias “before pursuing further dealer mark-up discrimination claims through supervisory or enforcement action.”

Signatories include the AFSA, American Bankers Assn., Consumer Bankers Assn., Financial Services Roundtable and U.S. Chamber of Commerce.

Law prohibits auto lenders from inquiring into or considering a consumer’s race or ethnicity. To extrapolate the background of borrowers for loan pricing comparisons, the CFPB uses a proxy based on a statistical analysis of the consumer’s last name and residence.

The CFPB says that methodology has an acceptable margin of error. But the Charles River study says it is way off.

“We share the Bureau’s commitment to combating illegal discriminatory treatment in the vehicle finance market,” the letter says. “This common goal is best achieved when fair lending standards are evidence-based, applied using analytically sound and transparent methods and predicated on accepted legal foundations.”

The National Automobile Dealers Assn. American International Automobile Dealers Assn. and National Association of Minority Automobile Dealers applauded the coalition’s efforts.

“Discrimination in the market simply cannot be tolerated,” says NADA President Peter Welch. “However, in light of the rigorous peer-review that has cast significant doubt on the CFPB’s findings, the bureau should change course – or at least hit the pause button – and address these new concerns.”

sfinlay@wardsauto.com