Lenders are falling short in efforts to prevent discrimination in areas outside housing, the head of the U.S. Consumer Financial Protection Bureau told members of Congress.
“We have found frequent instances where lenders had robust fair lending compliance programs for mortgage lending but weak or non-existent fair-lending compliance programs for other types of consumer lending,” CFPB Director Richard Cordray wrote in a June 20 letter to Representative Terri Sewell, an Alabama Democrat.
Sewell and 12 other Democrats on the House Financial Services Committee wrote to Cordray on May 28 to request information about a directive from the agency on discrimination in auto lending.
On March 22, the agency said that banks could be sued by the CFPB if they fund discriminatory vehicle loans made by auto dealers, a practice it said runs afoul of the 1974 Equal Credit Opportunity Act. The fact that the improper decisions may be made by dealers -- who are exempt from oversight by the consumer bureau -- doesn’t absolve banks of responsibility for racial disparities that result, the agency said.
Cordray made clear in his letter that the bureau is examining possible discrimination beyond the housing and auto finance market.
“Determining whether discrimination has occurred is a case-specific and fact-intensive inquiry,” Cordray wrote. “The bureau is accordingly evaluating possible discrimination in both auto lending and in other markets on a case-by-case basis.”
In its letter, CFPB didn’t respond to the requests for details about the policy’s origins. The lawmakers asked for information on specific allegations directed at lenders, the agency’s methodology for determining discrimination and the “numerical threshold” that indicates discrimination.
The directive drew strong opposition from auto dealers, who argued the CFPB hadn’t examined the effect its guidance could have on the cost of credit for consumers. Dealers participate in a system under which banks function as indirect lenders and allow dealers to add to the interest rate the banks charge and pocket the difference.
The agency said it is watching out for lending decisions that have a “disparate impact” on minority consumers. The term refers to decisions that aren’t intentionally discriminatory but have that effect in the aggregate.
In housing, assessing discrimination is made easier by the Home Mortgage Disclosure Act, a law requiring data-collection on race, gender and ethnicity, Cordray wrote. In other areas, the bureau uses statistical proxy methodologies to assess race.
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