NY Loan Bias Probe Targets Ford, Nissan, Hyundai and Honda

The Consumer Financial Protection Bureau recently aim at auto lending discrimination. In December of 2013, the government agency fined Ally Bank $98 million over allegations of loan bias. Now, a year later and a prominent New York Regulator is going after five auto manufacturers and two large lending institutions over concerns of racial loan bias.

Ben Lawsky is the Superintendent of the New York Department of Financial Services (NDFS). New York Governor, Andrew Cuomo, created that department in 2011. Part of the stated mission of the NDFS  is to, “Foster the growth of the financial industry in New York and spur state economic development through judicious regulation and vigilant supervision.” Part of that supervision apparently means keeping an eye on automakers. The New York Post reported today that Lawsky is launching an investigation into Hyundai, Honda, Nissan, Ford and Volkswagen over “discriminatory lending and other consumer abuses.”

According to the NYP, Santander and TD Bank have also been subpoenaed and are part of this investigation. The New York Department of Financial service does have a history of going after what they feel are offending organizations and levying punishment. Just this past August, the state organization fined British financial group Standard Chartered $300 million dollars for breach of compliance regulations. Does this mean that they will seek fines against the five OEMs similar to what occurred with Ally Bank and the CFPB?

With Ally Bank the allegation was that there was racial bias against certain borrowers. The specific charge was disparate impact. As Paul Metrey, Chief Regulatory Council of Financial Services, Privacy and Tax for NADA told DrivingSalesNews back in May, “this is not a theory of intentional discrimination that they’re pursuing. They’re not saying that it involves what’s known in the law as disparate treatment. They’re saying it involves disparate impact. That’s proved not by hidden cameras or mystery shoppers. It’s proved by statisticians. The statisticians will look at past transactions to try to figure out if one group paid more than another.” Could the new investigation by Mr. Lawsky and his organization be centered on data and gathered by statisticians? The overall perceived financial impact on those borrowers came out to $200-300 over the course of the entire loan.

Could this investigation on the part of the New York Department of Financial Services be the ramping up of a government regulation as it relates to the automotive lending? We told you back in early October that authorities on the state and federal level were conducting a widespread investigation into subprime lending practices. Specifically the concern was certain dealerships were falsifying information like employment and income information in order to push more loans towards approval. In addition to that Santander Consumer USA and General Motors Co. both received subpoenas from the Department of Justice to investigate their subprime auto lending practices. Santander, which is part of the investigation by the NDFS , has been targeted by the DOJ since at least 2007. The allegations of the part of the government seem to be misleading practices as involving high-risk, higher interest loans, which are bundled and sold as securities.

The case by Mr. Lawsky and the NDFS and DOJ could be centered around the fear of a subprime auto lending bubble. After the utter collapse of the U.S. financial markets in the late 2000s, regulatory agencies appear to be content to potentially error on the side of caution. More details will certainly be released in the coming days and weeks about the investigation into the five automakers and two banks involved in potentially fraudulent lending practices. However, the question for dealers remains: Are these investigations acceptable or do they represent overregulation on the part of the government? Do you feel that the government investigation of these OEMs and banks impacts your store? Do you think that government regulation of automotive lending is indeed trending upward? Is it needed?