The Consumer Financial Protection Bureau (CFPB) provided guidance to indirect auto finance lenders earlier this year of the CFPB’s requirement for compliance with the Equal Credit Opportunity Act (ECOA).
Certain members of the House of Representatives penned a letter to the CFPB which summed up the issue. “The CFPB’s guidance appears to stem from the concept of “disparate impact” and focuses on whether a finance source’s policy for compensating dealers for arranging financing for consumers results in pricing disparities on a Prohibited basis. Because allegations of disparate impact do not involve an intentional conduct, but instead consist solely of statistical analysis of past transactions…”
The guidance then requires that indirect auto finance lenders have a compliance process in place to determine if a dealer’s portfolio appears to contain elements of disparate impact, and if it does, to take corrective action.
As you can imagine, the lenders reacted. Some dealers have recently received letters from national lenders advising them that their portfolio may indeed have disparate impact tendencies against women, Hispanics and blacks.
gvo3 & Associates now offers a Disparate Impact Virtual Review. This review mimics the lender’s statistical analysis, using the same assumptions the lenders are using to determine whether the dealer’s origination’s exhibit traits of disparate impact. Our review then takes the next step – we disprove or prove the lender’s assertion.
We first identify the transactions that are included in the control group and the protected group. Then, using a virtual review process, we review a limited number of documents from the deal files to conduct a factual review of the entire portfolio during the review period. There can only be two results to our findings – either the entire portfolio during the review period contains elements of disparate impact –or it doesn’t.
If the result is that the portfolio does not contain elements of disparate impact, our report of findings can be used to present to any lender or regulator that you were notified of a potential issue and, after investigation by an outside party, the allegations were not substantiated.
If the result, however, is that the portfolio does appear to contain elements of disparate impact, gvo3 provides the consulting capabilities to put corrective actions and process in place to address the allegations. Then, if a lender or regulator pursues the issue, a dealer can show that it was notified of an issue, investigated the allegations and put corrective actions into place.