Banks that finance such loans will be penalized.
The Consumer Financial Protection Bureau announced today that it will sue banks that finance predatory auto dealer loans. The goal is to prevent dealerships, which are exempt from the agency's oversight, from hiking up interest rates offered on loans. The hikes lead to banks getting their rate and sellers pocketing the rest. The practice is known as the "dealer's markup," and according to CFPB, it also leads to racial discrimination.
"Consumers should not have to pay more for a car loan simply based on their race," said CFPB director Richard Cordray. "Today's bulletin clarifies our authority to pursue auto lenders whose policies harm consumers through unlawful discrimination."
According to the agency, research shows that the markup practice may lead to African-American and Latinos paying higher markups than white consumers with similar income levels and credit records. It's the kind of predatory lending that was a major factor in the nation's economic and home foreclosure crisis.
CFPB is urging banks to take steps that would discourage auto dealers from taking advantage of consumers by revising markup policies and finding other ways to compensate them such as a flat fee for each transaction.
The agency was created as part of the sweeping Dodd-Frank Wall Street Reform and Consumer Protection Act passed and signed into law in 2010. California Rep. Maxine Waters, now top Democrat on the House Financial Services, fought so hard for its inclusion that she led a coup of several Congressional Black Caucus members who sat on the committee at the time that threatened to prevent the bill from getting a full House vote if it was left out.
CFPB's mission is to ensure that lenders market financial products and services fairly to all consumers and penalize discriminatory practices.
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