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CFPB Answers Lawmakers' Auto Lending Queries
WASHINGTON (11/5/13)--The Consumer Financial Protection Bureau detailed how it screens for potential fair lending violations by indirect auto lenders in a Monday blog post and separate letter to members of the U.S. Congress.

To examine fair lending compliance by auto lenders, the CFPB said it uses a proxy method which "integrates two common approaches by combining the respective probabilities generated by the last name and geographical proxies." This method can be more accurate than relying only on the borrower's last name or geographic location, the CFPB blog post said.

"Statistical methods are often refined over time. We are committed to staying in dialogue with our sister agencies, lenders and researchers to refine our proxy methods over time, so that we can stop the silent pickpocket of discrimination in various consumer finance markets," the bureau blog post added.

The CFPB releases follow information requests sent by House and Senate members last week. In those letters, the legislators urged the CFPB to explain the principles behind policy guidance it issued for indirect auto lending earlier this year.

The CFPB in a March 21 release said it has the authority to pursue auto lenders whose policies can, at times, be used to harm consumers through unlawful discrimination. The CFPB also recommended that indirect auto lenders impose dealer markup controls or revise dealer markup policies to ensure they are in compliance with fair lending regulations. Indirect lenders should also eliminate dealer discretion to markup buy rates, and fairly compensating dealers using a different mechanism that does not result in discrimination, such as flat fees per transaction, the CFPB said.

Sens. Rob Portman (R-Ohio), Jeanne Shaheen (D-N.H.) and a coalition of 20 senators wrote on Oct. 30, "Although the CFPB has alleged that 'disparate impact' discrimination is present in the indirect auto financing market, the bureau has yet to explain its basis for this assertion.

"Nor has the bureau released the complete statistical methodology it employs for determining whether disparate impact is present in an auto lender's portfolio and the extent to which it has considered how the practical effect of its guidance will affect competition in the auto loan marketplace."
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