Auto lenders may come under more scrutiny

Auto Loan Risk Assessment

The auto loan industry has been improving for months now, with both an increase of lenders, and lenders themselves increased the number of loans they are providing. Officials in the car industry stated that car purchases are expected to continue to rise for the next year. However, with this increase also comes more oversight by government officials in order to ensure these practices don’t get out of hand.

An article for Reuters this week explained that some lending standards may be encouraging the Consumer Financial Protection Bureau to look more in to the practices of auto dealers and banks. According to the news source, some dealers that work with banks to make the loans have been marking up loans, or charging higher interest rates than what the bank suggested and then take the extra revenue for themselves. This practice has been found more often on minority borrowers.

“Consumer advocates for years have said markup practices give dealers incentives to steer borrowers toward loans with higher interest rates,” the source wrote. “They also say firms discriminate based on race, national origin and other factors. Some states have taken aim at the practice by placing caps on dealer markups.”

With these practices, the Justice Department and Consumer Financial Protection Bureau have become more wary, and have said that banks and auto dealers could be potentially responsible if these types of lending are found.

As the auto loan industry grows, having strong data systems, such as with data engine software, can help lenders comply with these standards and prove more easily they are not engaging in these practices. With recent incidents regarding irresponsible or illegal lending, having data on hand can not only help a lender stay profitable, but also prove their innocence and compliance more efficiently.

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