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IN FOCUS: INDIRECT AUTO LENDING
updated 03/29/13 07:56 AM
Take Note of CFPB, NCUA Guidance
On March 21, the CFPB issued a bulletin—CFPB Bulletin 2013-02—regarding compliance with the Equal Credit Opportunity Act (ECOA) and its implementing regulation, Regulation B, as they pertain to indirect auto lending programs that allow auto dealer interest-rate markups.

The CFPB is concerned with indirect auto lender markup and compensation policies with auto dealers, stating that the incentives these policies create and the discretion they permit cause significant risk for pricing disparities on a prohibited basis. An auto lender may be liable for such pricing disparities under the ECOA for both disparate treatment and disparate impact.

The CFPB Bulletin includes discussion on limiting fair lending risk in indirect auto lending, including:

  • Imposing controls on dealer markup and compensation policies, or otherwise revising dealer markup and compensation policies, and also monitoring and addressing the effects of those policies in the manner described below, so as to address unexplained pricing disparities on prohibited bases; or
  • Eliminating dealer discretion to mark up buy rates and fairly compensating dealers using another mechanism, such as a flat fee per transaction, that does not result in discrimination.

Most credit unions are not subject to CFPB jurisdiction, and enforcement authority for ECOA and Regulation B violations lies with the National Credit Union Administration (NCUA) for federal credit unions and Federal Trade Commission (FTC) for state credit unions.

However, couple the CFPB Bulletin with NCUA’s recent Letter to Federal Credit Unions regarding fair lending exams, 13-FCU-02, and it's clear that credit unions should take note. If your credit union has a markup and compensation policy for indirect lending, please review the CFPB Bulletin for guidance.

Does your credit union have the resources to effectively monitor your indirect lending portfolio for possible ECOA violations and address the effects of dealer markup and compensation policies? Are changes needed to compensate dealers in a different way, such as a flat fee per transaction method? These are relevant questions to ask as you review the CFPB Bulletin.

NCUA’s Letter to Federal Credit Unions includes additional resources to review and ensure your credit union has a strong fair lending compliance program. These resources include a new NCUA Fair Lending Guide and a Fair Lending Webinar scheduled for April 4.

 
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