Following saying a number of decades back that it intended to pick up with good lending enforcement in the indirect vehicle finance industry where the CFPB left off, the New York Division of Monetary Expert services has declared two consent orders with smaller sized, New York-chartered financial institutions based on the allegation that allowing vehicle sellers to negotiate the retail charges of retail installment contracts resulted in a disparate influence on the basis of race and countrywide origin.
For audience who adopted the CFPB’s initiatives in this space, the allegations in these consent orders will be incredibly familiar. The DFS asserted that the exercise of enabling vendor “discretion” in environment retail interest charges resulted in statistically major differences in pricing, disadvantaging Hispanic and African-American people, with differences ranging from 20 to 59 basis factors. The consent orders do not specify the analytical approach utilized to arrive at these disparity figures.
But inspite of the acquainted allegations, there are a few of noteworthy details about these two consent orders. Initial, they represent the to start with exertion by a point out regulator to go after the dealer finance charge challenge towards an assignee of retail installment contracts that we are conscious of. Even if the CFPB is unwilling to choose this theory up once again after the Congressional disapproval of its bulletin on indirect car finance, the NYDFS’ fascination in this issue could appreciably effects automobile finance businesses subject to the agency’s jurisdiction.
What’s more, the forward-hunting reduction in one particular of the consent orders goes nicely beyond that expected in the CFPB’s consent orders on this topic. A single of the focus on banking companies had exited the indirect auto finance business enterprise in 2017, but for the other financial institution that was nevertheless running, the consent get needed the bank to adopt a flat-fee pricing product, with no exceptions. This severe action looks to us to be tantamount to forcing the financial institution out of the indirect auto company there had been properly-publicized examples of auto finance providers adopting flat fees during the period of time of the CFPB’s consent orders, and these flat-fee products, in accordance to sector data, triggered a extraordinary reduction in individuals companies’ sector shares, and the flat rate types were being afterwards deserted.
We will be looking at for far more developments from NYDFS on this concern. But if the Office is intent on forcing auto finance corporations into a flat-rate-only pricing design, it could compel businesses with a larger sized indirect car business to litigate 1 of these scenarios because of the mind-boggling organization implications of adopting this kind of a design.