David Westcott — March 2013
2013 NADA Chairman
Several media outlets have reported that the Consumer Financial Protection Bureau is considering enforcement action against several large commercial banks for compensating dealers in a manner that allegedly may have resulted in violations of the Equal Credit Opportunity Act. The law was enacted in 1974 to bar discrimination in lending. The actions focus on whether consumers from certain demographic groups pay more dealer participation than similarly situated consumers from other demographic groups.
The rumored allegations do not involve intentional discrimination in auto finance, but instead are based on unintentional and unproven conduct under the disputed “disparate impact” theory of liability. This theory is based on an after-the-fact statistical analysis of whether one group paid more for credit than another group.
It is essential that this analysis be conducted in a statistically reliable manner. Otherwise, it can produce flawed findings that could serve as a springboard for disrupting the “optional” dealer-assisted financing system, which has served consumers at all credit tiers extremely well.
Dealers provide a valuable service that increases access to and reduces the cost of financing to car buyers. A dealership’s ability to discount the interest rate it offers to consumers—which is made possible by the customer’s ability to negotiate rates at the dealership—would be eliminated if CFPB action leads to an arbitrary flat fee compensation system.
Removing the dealer’s ability to “meet-or-beat” the best interest rate available to a customer from competing finance sources would significantly weaken rate competition and result in more expensive financing for consumers.
We’re committed to ensuring that all categories of consumers are protected and treated fairly. As NADA demonstrated during the Federal Trade Commission roundtable sessions, dealer-assisted financing provides overwhelming consumer benefits in the marketplace today, including access to affordable credit for millions of Americans who do not have traditional relationships with banks.