Senator Kirsten Gillibrand's office issued the following today:
December 06, 2018
The Consumer Financial Protection Bureau (CFPB) was a leading national regulator in addressing discrimination in the auto lending industry. In 2013, the CFPB issued an auto lending guidance, a set of requirements for car dealerships to follow to help limit these discriminatory practices. However, earlier this year, President Trump repealed the CFPB’s auto-lending guidance. Gillibrand today called on the FTC, which has authority over the business practices of car dealerships, to use its oversight authority to protect people of color against discrimination when purchasing a car.
“Buying a car is one of the biggest investments in a person’s life, and people shouldn’t have to pay more just because of the color of their skin. We know that car dealerships offer unfair prices for people of color, forcing them to pay thousands of dollars more to buy a car than their white counterparts,” said Senator Gillibrand. “The CFBP’s auto lending guidance provided an important check on these discriminatory practices. The repeal of this guidance was another attack by this administration on consumer protection rights, and I’m calling on the FTC to use its authority to enforce discrimination laws in this industry to make sure that all consumers are being treated fairly.”
Gillibrand was joined in her letter to the FTC by U.S. Senators Cory Booker (D-NJ), Elizabeth Warren (D-MA), Dianne Feinstein (D-CA), Richard Blumenthal (D-CT), Kamala Harris (D-CA), and Ron Wyden (D-OR).
The full text of Gillibrand’s letter can be found here and below:
December 6, 2018
The Honorable Joseph Simons
Chairman
Federal Trade Commission
600 Pennsylvania Avenue, NW
Washington, DC 20580
Dear Chairman Simons:
Senate Joint Resolution 57, which used the Congressional Review Act (CRA) to nullify the Consumer Financial Protection Bureau’s (CFPB) auto lending guidance, has introduced regulatory uncertainty about how to meet fair lending obligations and raises questions as to how federal regulators will enforce the law and address discrimination under the Equal Credit Opportunity Act (ECOA). Since some, including new leadership at the CFPB, argue that the CRA both applies to agency guidance and prohibits regulatory agencies from issuing guidance that is “substantially the same” as that disapproved under the CRA, the CFPB’s ability to provide creditors’ guidance for compliance with ECOA is now in question. Acknowledging the Federal Trade Commission’s (FTC) authority over the business practices of automobile dealers, we write to request a detailed explanation of how the FTC plans to uphold its responsibility and enforce ECOA in indirect automobile lending in this uncertain environment.
The Dodd-Frank Act made important changes to ECOA, giving the CFPB rulemaking and enforcement authority for implementing ECOA. However, under Dodd-Frank, the FTC retained its authority to enforce ECOA and Regulation B. In your 2018 report to the CFPB regarding FTC enforcements activities under the ECOA and Regulation B, you note that “the Commission has been coordinating certain law enforcement, rulemaking, and other activities with the CFPB.” However, we are unaware of the FTC bringing any ECOA cases in the last decade or more. Now, with the questions surrounding the CFPB’s ability and willingness to provide guidance to creditors on Indirect Auto-Lending, it is imperative that the FTC use its oversight to police and deter discrimination in dealer markups.
There are a myriad of ways that minority car purchasers are harmed by discriminatory and predatory practices. Auto finance companies allow dealers’ discretion to mark up interest rates and keep much of the markup for themselves. This discretion often means that consumers with the same credit risk can pay dramatically different interest rates, depending on how much the dealer marks up the interest rate for that particular customer. Dealers also have broad discretion in pricing add-ons for individual consumers or pricing cars.
Evidence suggests that in cases where the dealer representative has broad discretion to price interest rates, add-ons, or cars, minorities often pay more than similarly situated white consumers. Analyses by Professor Ian Ayers[2] of the Yale Schools of Law and Management and Professor Mark A. Cohen[3] of Vanderbilt University’s School of Management have demonstrated the contrasting effect on African-Americans of larger and more frequent interest rate markups when compared to white consumers of equal creditworthiness. In addition, recent paired testing in Virginia by the National Fair Housing Alliance [4] showed that more qualified non-white applicants were often offered higher-cost financing options than less qualified white applicants—resulting in an average of $2,662 more paid by nonwhite borrowers over the life of the loan. A separate analysis of 1.8 million car sale transactions involving almost three million add-on products found that inconstant pricing for the same add-ons leads to further pricing disparities, with Hispanics charged higher markups than non-Hispanics.[1] Minorities also experience discrimination in the price of cars themselves.[2]
As you know, the CFPB is indicating that the agency will curtail enforcement actions against auto lending discrimination. Though we believe the CRA’s language prohibiting an agency from taking actions that are “substantially the same” is unconstitutional, we believe this unfortunate reality makes it imperative for the FTC to improve its enforcement actions and aggressively police predatory practices at car dealerships.
Thank you for your consideration. We look forward to hearing from the FTC on how it plans to uphold its responsibilities and prevent discrimination in auto lending.
Sincerely,
After Trump Administration Rolled Back Protections Against Discriminatory Lending Practices That Result In People Of Color Paying Thousands Of Dollars More When Buying A Car, Gillibrand Calls On Federal Trade Commission To Protect Consumers Against Discrimination In Auto Lending
Communities of Color Face More Discriminatory Practices When Purchasing a Car, Often Receiving Higher-Interest Loans, Longer Loan Terms, Higher Monthly Payments, and Being Offered Less Financing Options than their White Counterparts
Washington, DC – After the Trump Administration rolled back protections against discriminatory lending practices that result in people of color paying thousands of dollars more when they buy a car, U.S. Senator Kirsten Gillibrand today called on the Federal Trade Commission (FTC) to protect consumers against discrimination in automobile lending. Car dealerships often charge higher-interest loans, set longer loan terms and higher monthly payments, and offer less financing options for consumers of color than for their white counterparts. People of color are also more likely to be sold more add-on products and to be told misleading information about their loan.The Consumer Financial Protection Bureau (CFPB) was a leading national regulator in addressing discrimination in the auto lending industry. In 2013, the CFPB issued an auto lending guidance, a set of requirements for car dealerships to follow to help limit these discriminatory practices. However, earlier this year, President Trump repealed the CFPB’s auto-lending guidance. Gillibrand today called on the FTC, which has authority over the business practices of car dealerships, to use its oversight authority to protect people of color against discrimination when purchasing a car.
“Buying a car is one of the biggest investments in a person’s life, and people shouldn’t have to pay more just because of the color of their skin. We know that car dealerships offer unfair prices for people of color, forcing them to pay thousands of dollars more to buy a car than their white counterparts,” said Senator Gillibrand. “The CFBP’s auto lending guidance provided an important check on these discriminatory practices. The repeal of this guidance was another attack by this administration on consumer protection rights, and I’m calling on the FTC to use its authority to enforce discrimination laws in this industry to make sure that all consumers are being treated fairly.”
Gillibrand was joined in her letter to the FTC by U.S. Senators Cory Booker (D-NJ), Elizabeth Warren (D-MA), Dianne Feinstein (D-CA), Richard Blumenthal (D-CT), Kamala Harris (D-CA), and Ron Wyden (D-OR).
The full text of Gillibrand’s letter can be found here and below:
December 6, 2018
The Honorable Joseph Simons
Chairman
Federal Trade Commission
600 Pennsylvania Avenue, NW
Washington, DC 20580
Dear Chairman Simons:
Senate Joint Resolution 57, which used the Congressional Review Act (CRA) to nullify the Consumer Financial Protection Bureau’s (CFPB) auto lending guidance, has introduced regulatory uncertainty about how to meet fair lending obligations and raises questions as to how federal regulators will enforce the law and address discrimination under the Equal Credit Opportunity Act (ECOA). Since some, including new leadership at the CFPB, argue that the CRA both applies to agency guidance and prohibits regulatory agencies from issuing guidance that is “substantially the same” as that disapproved under the CRA, the CFPB’s ability to provide creditors’ guidance for compliance with ECOA is now in question. Acknowledging the Federal Trade Commission’s (FTC) authority over the business practices of automobile dealers, we write to request a detailed explanation of how the FTC plans to uphold its responsibility and enforce ECOA in indirect automobile lending in this uncertain environment.
The Dodd-Frank Act made important changes to ECOA, giving the CFPB rulemaking and enforcement authority for implementing ECOA. However, under Dodd-Frank, the FTC retained its authority to enforce ECOA and Regulation B. In your 2018 report to the CFPB regarding FTC enforcements activities under the ECOA and Regulation B, you note that “the Commission has been coordinating certain law enforcement, rulemaking, and other activities with the CFPB.” However, we are unaware of the FTC bringing any ECOA cases in the last decade or more. Now, with the questions surrounding the CFPB’s ability and willingness to provide guidance to creditors on Indirect Auto-Lending, it is imperative that the FTC use its oversight to police and deter discrimination in dealer markups.
There are a myriad of ways that minority car purchasers are harmed by discriminatory and predatory practices. Auto finance companies allow dealers’ discretion to mark up interest rates and keep much of the markup for themselves. This discretion often means that consumers with the same credit risk can pay dramatically different interest rates, depending on how much the dealer marks up the interest rate for that particular customer. Dealers also have broad discretion in pricing add-ons for individual consumers or pricing cars.
Evidence suggests that in cases where the dealer representative has broad discretion to price interest rates, add-ons, or cars, minorities often pay more than similarly situated white consumers. Analyses by Professor Ian Ayers[2] of the Yale Schools of Law and Management and Professor Mark A. Cohen[3] of Vanderbilt University’s School of Management have demonstrated the contrasting effect on African-Americans of larger and more frequent interest rate markups when compared to white consumers of equal creditworthiness. In addition, recent paired testing in Virginia by the National Fair Housing Alliance [4] showed that more qualified non-white applicants were often offered higher-cost financing options than less qualified white applicants—resulting in an average of $2,662 more paid by nonwhite borrowers over the life of the loan. A separate analysis of 1.8 million car sale transactions involving almost three million add-on products found that inconstant pricing for the same add-ons leads to further pricing disparities, with Hispanics charged higher markups than non-Hispanics.[1] Minorities also experience discrimination in the price of cars themselves.[2]
As you know, the CFPB is indicating that the agency will curtail enforcement actions against auto lending discrimination. Though we believe the CRA’s language prohibiting an agency from taking actions that are “substantially the same” is unconstitutional, we believe this unfortunate reality makes it imperative for the FTC to improve its enforcement actions and aggressively police predatory practices at car dealerships.
Thank you for your consideration. We look forward to hearing from the FTC on how it plans to uphold its responsibilities and prevent discrimination in auto lending.
Sincerely,
