It appears that the Consumer Financial Protection Bureau’s (CFPB) controversial indirect auto initiative may be over. Before the holidays, the CFPB issued a blog post setting forth its fair lending priorities for 2017. It identified those priorities as Redlining, Mortgage and Student Loan Servicing, and Small Business Lending. Not only was indirect auto lending not listed, but the CFPB appeared to go out of its way to indicate it was moving away from this issue. The blog post noted that because the CFPB oversees so many products and lenders, it occasionally needs to re-prioritize its work. As an example of such re-prioritization, the CFPB noted that the agency has “examined over a dozen of the nation’s largest auto lenders and achieved important market awareness and movement.” Although the blog post doesn’t say it, what it’s referring to is the indirect auto initiative, in which the CFPB examined whether loans funded by indirect auto lenders but made by dealers resulted in disparate impact such that minority consumers paid more in dealer markup than non-Hispanic white borrowers.
The initiative required the CFPB to extrapolate the race, ethnicity and gender of borrowers based on their names and where they lived, a process known as proxy methodology. The use of proxy methodology, the CFPB’s focus on indirect lenders as a perceived end-run around auto dealers’ exemption from the CFPB’s authority, and the reliance on disparate impact methodology all proved controversial.
Now, however, it appears that “re-prioritization” means that the initiative is over. In a carefully crafted sentence that strongly suggests but doesn’t quite say that the CFPB won’t bring any more enforcement actions in this area, the CFPB noted that it “believe[s] that a wide range of supervisory compliance solutions tailored to each lender will work to secure and advance [the CFPB’s] progress in protecting consumers.” We read “supervisory compliance solutions” to mean “no enforcement actions.” And the fact that the solutions will be “tailored to each lender” intimates that the CFPB has given up on trying to ban dealer markup altogether, but will instead seek to lower caps on markup through its ongoing supervision of lenders. Only time will tell whether this step will also bring an end to the legislative efforts to overturn the CFPB’s approach to this issue.