I sometimes receive scathing e-mails alleging I did or said something bad enough to upset the writer. I learned long ago to put a 24-hour filter on any response, providing an opportunity to cool off.

It’s amazing how the contents and tone of the delayed response are tempered compared with what might be said in a trigger response. Other times, it’s best just to ignore an obvious idiot who doesn’t know what he’s talking about.

A third national lender fired off its version of a scathing correspondence in a letter to some dealers, alleging their loan portfolios may contain elements of disparate impact, a form of lending discrimination. 

Now, dealers are left to decide: respond or ignore.

As a refresher, the Equal Credit Opportunity Act does not allow creditors to impose different terms or conditions (such as higher interest rates or fees) on a loan based on a consumer’s race, color, religion, national origin, sex, marital status, age, or if he or she receives public assistance. Disparate impact essentially means a creditor unintentionally discriminated against one or more of the above.

Further refresher: The Consumer Financial Protection Bureau, which now oversees major lenders, advised them on March 31 to implement a monitoring process to ensure against disparate impact by dealers arranging third-party car loans.

So, back to the original query of whether a dealership should respond to or ignore an allegation of disparate impact in its portfolio.

The lender’s letter was not your typical scathing communication from an idiot. We’re talking about a notification from a national financial institution that is regulated by the CFPB.

This lender has reviewed recent loan originations and determined some of them show signs of disparate impact. Me thinks ignoring this notice is not a prudent move.

The letters I’ve seen specifically state the lender will continue to monitor the dealer’s originations and, if the trend continues, further action is likely. Further action is defined as potentially terminating the lending relationship with the dealership or putting it on a flat-fee compensation plan rather than one that includes loan percentage-rate add-ons.

That leaves responding, which requires a plan.

The lender has made its determination based on census data, not actual deal-file review. For example, to separate women from men for a disparate-impact study on women, the lender uses a list of more than 4,000 common female first names to put deals in the female bucket.

Those include androgynous names such as Pat, Lindsey and Michael (this is not a typo). Obviously then, the female bucket may contain some deals made to men, skewing the results. The lenders have similar lists of Hispanic surnames and zip codes of areas where the majority of residents are minorities.

A dealership’s first step in formulating a plan is to spend a week looking at all of the retail deals generated during the period in question. Systematically segment the portfolio into the group in question and the rest, or the control group. Determine the average rate markup between the two groups to see if the pattern alleged in the lender’s on-notice letter holds over all originations during the period.

If the week-long study disputes the lender’s findings, keep a record of that in the event you later are queried. Then plan to conduct this study quarterly for the foreseeable future.

If the week-long study affirms the lender’s findings, you need to undertake some process changes. Recommendations on those will be the subject of next month’s column.

To be continued…

Gil Van Over is president of gvo3 & Associates, a national compliance consulting firm that specializes in F&I, Sales, Safeguards and Red Flags compliance. Gvo3’s website is www.gvo3.com.