A coalition representing auto lenders says a federal agency should admit it is wrong.
According to Wards Auto, the group in a letter to the Consumer Financial Protection Bureau (CFPB) asks it to address its alleged bias and error in an analysis it uses to determine whether disparate impact, or unintentional discrimination, exists in a lender’s portfolio.
The coalition says the methodology is flawed, yet the bureau keeps relying on it.
Since 2013, the CFPB has urged lenders to change how they compensate auto dealers for arranging financing. The bureau alleges that disparate impact sometimes results from dealer reserve, a practice in which dealers typically add a percentage point or two to a car loan’s interest rate as compensation for arranging the third-party loan.
But a 2014 study by Charles River Associates says the CFPB’s analysis overstates how that practice affects ethnic minorities. The American Financial Services Association commissioned the study.
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