The Consumer Financial Protection Bureau (CFPB) and the Department of Justice are examining the lending practices of major auto manufacturers for possible discrimination in lending, according to regulatory filings.
Toyota Motor Credit Corporation said in a September 13 regulatory filing that the CFPB and Department of Justice sought information from it and other auto finance providers about pricing practices for loans that the company funds for auto dealers.
Toyota could face legal action if the agencies find that it violated the Equal Credit Opportunity Act, a 1974 law barring discrimination in lending.
The CFPB and Department of Justice have sought data about a practice the agency refers to as "dealer markup" and auto dealers can "dealer participation" or "dealer-assisted finance." Under this system, lenders work indirectly by allowing dealers to add to the interest rate the lenders charge and pocket the difference.
The CFPB cautioned banks that they may face enforcement action if they fund discriminatory loans.
The CFPB applies a legal doctrine known as "disparate impact" to consumer financial products. The doctrine states that lenders can be sanctioned for actions that have a discriminatory effect, even where the lender did not intend to discriminate. To determine disparate impact, the CFPB has sought large amounts of data from lenders regarding borrowers' races and interest rates.
Source: Carter Dougherty, Automakers' Lending Practices Probed by U.S. for Bias, BLOOMBERG (September 20, 2013) http://www.bloomberg.com/news/print/2013-09-20/automakers-lending-practices-probed-by-u-s-for-bias.html.
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