The Consumer Financial Protection Bureau (CFPB) continues to be concerned about some of the methods lenders have been using to process auto loans for borrowers, and particularly those with lower credit scores.
According to the CFPB, some lenders may be in violation of the Equal Credit Opportunity Act (ECOA) for committing discriminatory lending practices involving auto loans. The ECOA "prohibits credit discrimination on the basis of race, color, religion, national origin, sex, marital status, age, or because [a borrower receives] public assistance." Lenders are not permitted to ask for this information when determining the creditworthiness of a borrower or determining the parameters of a loan.
The CFPB recently held a forum on the matter of auto loans, during which time CFPB director Richard Cordray said that the agency has "serious concerns about discrimination in the field of indirect auto lending, which is causing millions of dollars in harm to consumers." Specifically, Cordray said the CFPB is focusing on loans originated by dealers on behalf of financial institutions.
As we reported last week, the CFPB is only able to provide oversight over auto loans, indirectly, if they are managed by a financial institution that has more than $10 billion in assets. The CFPB is not able to regulate car dealers directly.
As lenders evaluate potential borrowers, within the confines of the ECOA, tools like loan management software will provide financial institutions with the information they need to make informed lending decisions that will not expose them to an excessive level of risk.