Vehicle-Financing Industry Gears Up to Fight Regulator

SAN FRANCISCO – Chris Stinebert says he’s no alarmist and isn’t prone to believe in conspiracy theories.

“But it goes without saying that Wall Street in general and vehicle financing in particular are under attack,” says the president and CEO of the American Financial Services Assn.

Stinebert specifically refers to the U.S. Consumer Financial Protection Bureau’s allegation of vehicle-financing disparities involving ethnic groups.

The federal regulator says an analysis it did indicates minorities are charged higher dealer-reserve rates than are non-minorities.

In making the accusation, the CFPB criticizes the long-standing system in which dealers increase loan rates by varying percentage points as payment for acting as middlemen between lenders and car buyers.

The practice gives dealers the discretion to set final consumer-loan interest rates, with lender approval. That’s led to rate discrimination against minorities, the CFPB says.

The bureau wants dealer reserve replaced by something such as flat fees. “The target today is dealer reserve,” says Stinebert. He calls the regulator’s replacement compensation proposals “impractical.”

His association commissioned a study to assess how the CFPB came up with its so-called disparate impact results.

Charles Rivers Associates did the study involving more than 8.2 million auto financing contracts. The firm says data fails to support the CFPB’s claims.

“Charles Rivers found the (CFPB) methodology flawed, biased and prone to assumptions,” Stinebert says at the AFSA’s annual vehicle financing conference held here in conjunction with the upcoming National Automobile Dealers Assn. convention.

“I’m not saying the Charles Rivers study proves there’s no lending discrimination at all, but it is not the rampant, systematic problem the bureau is playing out,” Stinebert says

Republicans taking control of Congress will mean more elected officials “willing to listen to us” then had been the case with the past Democratic majority, he says. “It makes a huge difference going forward.”

The CFPB’s analysis led to a settlement case in which Ally Financial is paying $80 million in restitution and $18 million in fines because some of the lender’s dealer clients allegedly charged higher loan rates to African-Americans, Hispanics, Asians and Pacific Islanders.

The regulator has sent letters of warning to other banks, firms and financial institutions involved in auto financing.

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