Pub. 14 2015-2016 Issue 4

N E W J E R S E Y C O A L I T I O N O F A U T O M O T I V E R E T A I L E R S I S S U E N O . 1 , 2 0 1 6 14 new jersey auto retailer For some time, the Consumer Financial Protection Bureau (“CFPB”), a creature of the financial meltdown last decade, has been looking into motor vehicle financing with the obvious objective of eliminating the ability of dealers to set the markup or spread between the buy rate for financing and the consumer rate. The CFPB asserts that discrimination against minorities and other suspect classifications of consumer occurs when dealers have discretion to fix the spread or markup. However, the CFPB has no jurisdiction to directly regulate the activities of dealers in this area so, instead, it has focused its attention on the financial institutions that buy the retail installment contracts from dealers. It claims that the financial institutions who allow dealers discretion are liable for the discrimination that occurs. To show discrimination, the CFPB does not use actual evidence of discriminatory markups by demonstration that a minority has been charged a different markup than a similarly situated non-minority. Instead, it uses a disparate impact analysis that clas- sifies individuals as minorities or suspect classifications by such things as a person’s name or where he or she lives. Looking at the markups for consumers so identi- fied and comparing them to that for other consumers the CFPB determines whether a pattern of discrimination exists. Using disparate impact, the CFPB claims to have found patterns of discrimination and has forced some banks to change their policies and limit dealer markups. There has been extensive criticism of the methodology used by the CFPB. In par- ticular, use of names and the addresses to determine who is and is not a minority has been attacked as having little correlation to who is and is not a minority. Absent such a correlation, there is no basis for conclud- ing that a differential in markup between minorities and non-minorities exists. In 2015, a Congressional Committee issued a scathing report denouncing the CFPB methodology as illegitimate. Yet, despite Congressional action, the CFPB does not appear willing to give up its program to lim- it dealer discretion. Thus, there promises to I n previous years, an article in New Jersey Auto Retailer magazine about the legal and regulatory issues facing dealers would have focused on activity in the State Legislature and New Jersey executive agencies. This year, there is so much significant activity at the Federal level that a discussion of some of those initiatives is necessary. Federal Regulatory Issues Move To The Forefront In 2016 BY MARVIN J. BRAUTH, ESQ.