Late last week, the Consumer Financial Protection Bureau issued guidance warning indirect auto lenders of potential fair lending issues with dealer markup practices. The CFPB's Bulletin has the potential to reshape the auto lending industry. In particular, the CFPB suggests
- Standard industry practices likely will result in indirect auto lenders falling within the broad definition of "creditor" under the Equal Credit Opportunity Act (ECOA).
- As ECOA creditors, indirect auto lenders may be liable, under an ECOA disparate impact theory, when pricing disparities exist in indirect auto lenders’ portfolios.
- Indirect auto lenders may wish to eliminate dealer markups and resort to alternate means for compensating dealers, and they may need to establish “robust fair lending compliance management programs” that include numerous features and elements.