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Director Cordray Remarks at the CFPB Auto Finance Forum

On May 21, 2018, the President signed a joint resolution passed by Congress disapproving the Bulletin titled “Indirect Auto Lending and Compliance with the Equal Credit Opportunity Act” (Bulletin), which had provided guidance about the Equal Credit Opportunity Act (ECOA) and its implementing regulation, Regulation B. Consistent with the joint resolution, the Bulletin has no force or effect. The ECOA and Regulation B are unchanged and remain in force and effect.
The materials relating to the Bulletin on the Bureau’s website are for reference only.

Thank you all for joining us today. We have convened interested parties to discuss what has indeed become a much-talked-about issue – discrimination that can occur in auto lending. Cars and trucks can quite literally take consumers to new opportunities. Maybe the destination is a new job. Or maybe the goal is to save time spent commuting – either to work longer or to have extra time for themselves or their families. For those who live in rural or suburban areas, a vehicle is almost a basic necessity to get around. Every year, millions of American families buy cars and trucks for all these reasons and more, and this market is very important to our economy.

For some consumers, however, that purchase can come at a greater cost. Some people end up paying more on their auto loans than their neighbors – with the difference being not their creditworthiness but their race or ethnicity. Such discrimination may result in millions of dollars in unjustified consumer harm every year in the auto lending industry.

At the Consumer Financial Protection Bureau, we are committed to ensuring fair and equal access to credit. In fact, it is one of our statutory responsibilities as a financial regulatory agency. Over the years, Congress has made findings and has enacted laws to identify and root out differential treatment of Americans in the marketplace based on gender, race, national origin, and other protected characteristics. At the Bureau, we are charged with enforcing the laws relating to credit discrimination, including the Equal Credit Opportunity Act. We also know all too well that communities of color were hit especially hard by the recent financial meltdown. While nearly all Americans experienced declines in their household wealth, African Americans and Hispanics felt the steepest drops. They need and deserve to be treated fairly when seeking access to credit.

Last year, we issued a bulletin providing guidance that the Bureau would consider evidence of disparate impact as one method of proving discrimination under federal fair lending law. There was nothing new in what we said at that time. In fact, we were simply making the statement that as a new federal agency we too would be joining with our sister regulatory agencies and the Department of Justice in acknowledging and reaffirming the existing law of the land. From the perspective of a consumer disadvantaged by such practices, it makes no practical difference whether the lender consciously intended to discriminate against them – the outcome, and the harm, is the very same. We firmly believe that every consumer should have equal access to credit and an equal chance to pursue opportunities.


When consumers sit down at the table to discuss their prospects for a loan, they are often unaware of the options actually available to them and are unaware of lender incentives, not effectively disclosed, for intermediaries to provide higher rates than they actually qualify for. These incentives can result in African American, Asian, and Hispanic borrowers paying more to access credit than similarly situated non-minority borrowers. We have seen this dynamic broadly at work in the mortgage market, and a similar dynamic exists also for auto loans.

So what is our role in all of this? Earlier this year, we issued another bulletin to clarify the boundaries of our authority over auto lending and to provide guidance to indirect auto lenders about compliance with the law. Congress has spoken very clearly and precisely in this area. The law specifies that we generally do not have jurisdiction over auto dealers and their practices, but we do have jurisdiction over the largest auto lenders and their lending programs.

We have sought carefully to observe and follow the exact contours of the regime laid down by Congress. And we have noted that we have a clear duty and thus a responsibility to address any discriminatory practices that result from the loan programs established by auto lenders, whether they are lending directly to consumers or instead are lending indirectly through intermediaries. The legal responsibility is the same. And again, from the standpoint of the individual consumer, the result is the same.

We know that, like us, many lenders are committed to creating a fair marketplace for all consumers by fighting practices that result in unlawful discrimination. Each lender bears the responsibility for policing its own lending programs to avoid such practices and to achieve that result. And it must be said that lenders who turn a blind eye and allow these practices to continue are undermining all those who are making conscious efforts to faithfully follow the law.

So in the bulletin we issued earlier this year, we reminded lenders offering auto loans through dealerships that they remain accountable for complying with fair lending laws in their indirect lending programs. Again, none of this should have come as news to auto lenders, for whom these laws had already been in place for many years and many of whom had already been through litigation on some of these very same points.

In that bulletin, we provided guidance to lenders that their mark-up policies, which allow dealers to exercise discretion over the interest rates they charge consumers and provide direct financial incentives for charging higher prices, may lead to fair lending violations. When lenders provide this type of discretion and incentives – as we have seen time and again in the mortgage market – they create significant risk of illegal pricing disparities based on factors like race or national origin. Discrimination on these grounds, even when it happens unintentionally, causes real harm to consumers and violates the law.

So when lending disparities occur among consumers on the basis of protected characteristics, we have an obligation to do something about it. Assessing fair lending compliance poses many challenges, but those challenges are nonetheless part of our job. We have heard from many auto lenders who want to know how they can ensure that their practices are not resulting in unlawful discrimination, and a key element in doing so is ensuring that lenders are aware of the analysis we use to make these determinations.

Again, the approach we take to assessing fair lending risks is not new, and is already familiar to most lenders. Our approach is largely similar to those used by the Department of Justice and other regulators. We use proven statistical methods to assess the probability that a particular customer belongs to a particular racial group or is of a particular national origin. We use only publicly available data to determine these probabilities, so that anyone can replicate our processes. And our initial analysis thus far raises serious concerns about discrimination in the field of indirect auto lending, which is causing millions of dollars in harm to consumers.

In the bulletin we released earlier this year, we provided guidance about steps auto lenders might consider taking to ensure they are in compliance with the Equal Credit Opportunity Act and Regulation B. One approach is to develop robust fair lending compliance management systems to monitor for disparate impact and promptly remedy consumer harm on an ongoing basis when it is identified. The bulletin also stated that lenders could take steps to comply with the law by adopting some other pricing mechanism that fairly compensates dealers for their work but avoids the fair lending risks that are inherent in pricing by discretionary markup.

There may be several such mechanisms that would work in practice: a flat fee per transaction, or a fixed percentage of the amount financed, or other nondiscretionary approaches that market participants may devise that would work to address these concerns. The precise details of any such approach bear further analysis, but the central points are twofold. First, we recognize that auto dealers play a valuable role in much auto lending that occurs in this country, and they deserve to be compensated fairly for the work they do. Second, we are aware that the structure of indirect auto lending programs can greatly affect the risks of discrimination that harms consumers and violates the law.

As we continue to work through these issues, it is worthy of emphasis that alternative pricing mechanisms can compensate dealers fairly and still may reduce or eliminate fair lending risks without involving intensive monitoring by lenders of the practices that are occurring throughout their entire dealer network and without requiring close and constant monitoring of lender programs by their regulators.

It is also worth considering further how the disclosure of markup practices actually works, to ensure appropriate transparency to consumers. Individual borrowers perhaps should have a clearer understanding that their creditworthiness actually qualifies them for a lower approved interest rate that, in fact, is being marked up to a higher rate for purposes of that proposed transaction, based on financial incentives to the dealer. For many consumers, that would likely be important information as they consider their credit options.


We look forward to the discussions today, which will inform our work and provide opportunities for insights and observations from some of the most experienced and knowledgeable players in the auto lending market. But if anyone is uncertain about our resolve, let me do my best to dispel that uncertainty this morning. We will make every effort to do the job that Congress has set out for us, which is to identify and root out unlawful, discriminatory lending practices, including practices that, in the words of the Supreme Court, are “fair in form but discriminatory in operation.” We intend to create a fair marketplace for all consumers. Illegal discrimination in all forms is simply wrong. No one should have to worry about having to pay more to finance a vehicle because of race, ethnicity or any other protected characteristic under federal law.

Here as elsewhere, we are focused on making our financial markets work better for everyone involved. Consumers benefit greatly from the opportunities conferred by responsible providers who, in turn, deserve fair compensation for the work they do to provide those opportunities. We want to see consumer protections and business opportunities work in tandem, and we expect financial institutions to lead through responsible business practices. We believe that such a marketplace will benefit all of us and promote a brighter future for this country. Thank you.

The Consumer Financial Protection Bureau is a 21st century agency that implements and enforces Federal consumer financial law and ensures that markets for consumer financial products are fair, transparent, and competitive. For more information, visit