Dealership Friend or Foe: The Consumer Financial Protection Bureau

President Barack Obama: “America’s consumer watchdog!”

America’s Consumer Watchdog. What group is President Obama talking about, and how has the creation of that group become a vital concern for one component of the Retail Automotive Industry?

The group is the Consumer Financial Protection Bureau. Created as part of the Dodd-Frank Wall Street Reform Act back in 2010, the CFBP’s mission is “to make markets for consumer financial products and services work for Americans.”

The mission sounds admirable, however what has the reality been? And how does this relate back to Auto Dealers? In 2013 this organization, which has been given great power in the U.S. financial industry, ordered Ally Bank to pay 98 Million in penalties for alleged disparate impact. The CFPB and Department of Justice found that Ally’s retail auto loan practices had negative financial consequences for 235,000 individuals, from 4 different racial groups, to the tune of 200-300 dollars over the course of their loan. For more on this we turn to Paul Metrey, Chief Regulatory Council of Financial Services, Privacy and Tax at NADA.

Metrey explained that, “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.”

In the course of determining if one group did pay more than another, the largest complaint levied against the CFBP hasn’t been the fine or sudden regulation of business, it has been a lack of transparency about how they reached their conclusions.

“Congress on repeated occasions has tried to seek from the Bureau is what is the basis point threshold for each group of consumers that you’re looking at? How does the finance source that is trying to monitor the paper that they buy from dealers  to try to determine if there’s an issue here, how do they know what the appropriate threshold is, and to date, that answer has really be elusive,” Metrey added.

The consumer financial protection bureau declined both interview and comment requests for this story. Is this a case of the CFPB simply reaching out to try to help the consumer? Or, is a matter of the Government reaching into private business, imposing fines and regulations, and not having to explain its methodology? The answer to that is, of course, a matter of opinion, and it’s up to you.