Indianapolis, IN: Field hearing on auto finance


Welcome. Welcome to the Consumer Financial
Protection Bureau’s Public Field Hearing in Indianapolis, Indiana, at IUPUI, Indiana University-Purdue
University Indianapolis. At today’s field hearing, you will hear from Director Cordray
and a panel of distinguished experts who will discuss the auto finance market. The Consumer Financial Protection Bureau,
or the CFPB, is an independent federal agency whose mission is to help consumer finance
markets work by making rules more effective, by consistently and fairly enforcing those
rules, and by empowering consumers to take more control over their economic lives. My name is Zixta Martinez. I’m the Associate
Director for External Affairs at the CFPB. Our audience today includes public officials,
community leaders, advocates, industry representatives, and, of course, consumers. We are especially
pleased to have in the audience Director Dennis Bassett, the Director of Indiana’s Department
of Financial Institutions, as well as staff from that office. We also have with us staff
members of the Office of the Indiana Attorney General, as well as congressional staff from
the offices of Senator Joe Donnelly and Congressman Luke Messer. Finally, we are honored to be
joined by Commissioner Lucie Tedesco and staff members from the CFPB’s Canadian counterpart,
the Financial Consumer Agency of Canada. Let me spend just a few minutes telling you
what you can expect at today’s field hearing. First, you’ll hear from CFPB Director Cordray,
who will provide remarks about the auto finance market. Then Patrice Ficklin, CFPB Assistant
Director for the Office of Fair Lending and Equal Opportunity will lead a panel discussion
on auto finance. Following the panel discussion there will be an opportunity to hear from
the public. Today’s field hearing is being livestreamed at ConsumerFinance.gov. You can
follow CFPB on Twitter and Facebook. So let’s get started. I’m very pleased to introduce Richard Cordray.
Prior to his current role as the CFPB’s first director, he led the CFPB’s Enforcement Office.
Before that, he served on the front lines of consumer protection as Ohio’s Attorney
General. In this role, he recovered more than $2 billion for Ohio’s retirees, investors,
and business owners, and took major steps to help protect its consumers from fraudulent
foreclosures and financial predators. Before serving as Attorney General, he also served
as Ohio State Representative, Ohio Treasurer, and Franklin County Treasurer. Director Cordray? [Applause.] Thank you, Zixta. Thank you all for joining
us today, and allow me also to join in recognizing the Honorable Lucie Tedesco, the Commissioner
of the Finance Consumer Agency of Canada, who joined us today, as well as Director Bassett
from the Indiana Department of Financial Institutions. We’re here in Indianapolis to discuss a market
that matters deeply, both to our everyday lives and to our nation’s economy. That is
the market for financing the sales of cars and trucks. Nearly 9 out of 10 Americans commute
to work by automobile, and in vast areas of the country, including where I’m from, Ohio,
ownership of a vehicle is almost essential to personal mobility. As for the economy,
we all know that automotive manufacturing is a substantial driver of jobs, income, and
growth in this country, especially here in the Midwest. The deep penetration of this
industry in our economy is more than a century old, and the numbers are staggering. Almost
4 million people are employed in auto-related industries and aftermarket service businesses,
typically at relatively high wages. Millions more rely on the automotive industry for their
health care, or collect pensions from prior work in the industry. Sixty years ago, an industry executive made
the famous statement before Congress that, “For years I thought what was good for the
country was good for General Motors, and vice versa.” His statement was exemplary of a widespread
state of mind about our way of life in America. Jack Kerouac defined the Beat Generation with
his classic work, On the Road, which starts with bus travel but later steps up to a rickety
Ford sedan. In The Grapes of Wrath, Steinbeck memorably sends the Joad family, in a converted
Hudson truck, west from Oklahoma on Route 66 to seek a new life in California. And just
think of our many iconic songs about our little cars�Little Deuce Coupe by the Beach Boys,
some of you may recall that, those older in the crowd�our big cars�Pink Cadillac by
Bruce Springsteen�and our trucks�Roll On (Eighteen Wheeler) by Alabama. And, of
course, there was the British band Queen’s emphatic anthem that spoke for many Americans,
called I’m In Love With My Car. Although the automotive industry has been
through dramatic ups and downs in our lifetime, it’s notable that in September 2014, the facts
on the ground and the signs for economy are quite good. Five years after the fast-track
bankruptcies of Chrysler and General Motors�I served as Ohio Attorney General during that
rather whirlwind period�automotive manufacturing is back, and the reborn industry is leading
the economic recovery. And make no mistake about it�our view at the Consumer Financial
Protection Bureau is that strong auto sales are good for consumers, good for producers,
and good for the American economy. A different aspect of the broader market,
and more of our focus today, is the financing of auto sales. As with many consumer financial
markets, financing here is driven by two distinct historical dynamics. First, loans generated
by the automakers themselves, through their own finance companies, to help move their
product, and second, loans that banks and other lenders make to their customers to fund
purchases of all kinds, including cars and trucks. The auto finance market is yet further
complicated by financial mechanisms that have grown up around lease arrangement, which are
increasingly common, and used by consumers instead of loans for many outright purchases. Our intense reliance on our cars and trucks
is underscored by the fact that consumers often are willing to pay their auto loan before
other types of consumer debt, like a credit card or a mortgage payment. This makes sense
if people feel unable to do without their regular mode of transport, especially in vast
areas of the country where mass transit is less common or convenient. It also explains
how powerful the collateral can be on small-dollar car title loans, though those are not our
focus today. It is not surprising, then, that auto loan
debt is the third-largest source of consumer debt in American, exceeded only by mortgages
and student loans. In fact, at the beginning of this year, American consumers had more
than 87 million auto loans outstanding, valued at nearly $900 billion. Over time, the average
loan for a new car has crept up to nearly $27,000, though it is also noteworthy that
those cars are staying on the road longer. Given the significance and breadth of this
market, it’s critical that we keep a watchful eye on how consumers are being treated. Back in 1903, President Teddy Roosevelt gave
a speech about his Square Deal, which included some of the country’s earliest consumer protection
legislation. The Rough River said, “Let the watchwords of all our people be the old, familiar
watchwords of honesty, decency, fair dealing, and common sense. We must see that each is
given a square deal, because he’s entitled to no more, and should receive no less.” Those
are watchwords we live by at the Consumer Bureau, because honest businesses and America’s
consumers all deserve a fair financial marketplace. In order to understand the actual consumer
experience, let us go back and understand how the market functions. Whether a consumer
is financing an auto purchase or leasing a car, they have two main options. They can
take out a loan or lease directly from a lender, such as a bank or auto finance company, or
they can go through an intermediary to get a loan or lease from a third-party lender,
which is known as indirect auto financing. Roughly 80 percent of consumers who obtain
credit to finance their auto purchase use indirect financing and get their loan through
an auto dealer. Banks and other financial institutions engage
in both direct and indirect financing. While some non-bank auto finance companies engage
in both direct and indirect auto lending, the so-called captive finance companies, owned
by the automotive manufacturers themselves, focus on indirect financing. Many captives
provide consumers with financing for the primary purpose of facilitating sales for their parent
companies and associated dealers. Non-bank auto finance companies extend hundreds
of billions of dollars in credit to American consumers, yet they have never been subject
to any supervisory oversight at the federal level. These companies have also played a
significant role in the growth of subprime auto lending, by making loans to consumers
with lower credit scores. In this market, as in others, subprime borrowers may be more
vulnerable to predatory practices, so direct oversight of their lending practices is essential. Today we’re announcing a proposal to extend
our supervisory oversight to larger, non-bank auto lenders, including these captive lenders.
This proposal is needed to level the playing field for banks and non-banks in the auto
lending market. We already supervise the auto lending practices of banks with more than
$10 billion in assets, and this step would extend our supervision to the larger non-bank
companies, as well. It should not matter whether you get a loan or lease from a company that
has a banking charter versus one that does not. Every auto lender should be following
the law and be subject to the same level of oversight. This expansion of coverage is important
to protect consumers, but it will also remove a distortion in the marketplace, and as a
matter of simple fairness to competitors who should play by the same rules in the same
way. When consumers set out to bring home a car
or a truck, the process can be uniquely complex, as it encompasses many decisions. First, people
have to pick out their choice of vehicle�the make, the model, the price, and its features.
At some point, they may encounter certain add-on products, such as a warranty, rustproofing,
roadside protection, service plans, and more. By the time they’ve made all these choices,
they may be invested in the car, psychologically, and impatient to finish up and drive it home.
Financing can come to seem like almost an afterthought, or a mere detail, rather than
a key product in its own right. Consumers may have very little sense of what financing
options are available beyond the first deal described to them. We need to make sure that loans offered by
auto finance companies are marketed honestly and fairly. Companies cannot use deceptive
tactics to sell loans or leases. Consumers should not be lured into a deal by misleading
statements about the benefits of the product they’re being sold, and consumers should get
clear and intelligible contracts, centered on terms that they can understand. Once the deal is finalized and people are
making payments on their loans, we want to make sure that the finance companies are providing
accurate information to the credit bureaus. Over the summer, we took action against an
auto finance company that distorted consumer credit records. For years, the company knew
that it was sending incorrect information about tens of thousands of its own customers
to the credit bureaus. That is against the law, and we will be vigilant to ensure that
companies have processes in place to ensure they’re reporting accurate information about
their customers to the credit bureaus. When consumers fall behind on their loans,
we have authority to ensure they’re not subjected to unfair, deceptive, and abusive debt collection
tactics. When auto loans reach a certain stage of delinquency, the finance company has the
option to repossess the car. We’ve heard complaints that cars and trucks are being repossessed
while people are current on the loan, or have a payment arrangement in place. Consumers
also complain about inaccurate deficiency balances following repossession. We’re working
to make sure that collectors are relying on accurate information and fair processes whenever
they collect on debts or seek repossession. In all these areas, our proposal to assert
supervisory authority over the larger non-bank auto financing companies would help us make
sure that these companies are playing by the rules just like everyone else. Specifically,
we’re proposing to supervise non-bank auto finance companies that enter into or otherwise
acquire 10,000 or more loans, leases, and/or loan refinances per year. We would cover about
90 percent of the non-bank auto finance market activity, and bring more accountability for
about 6.8 million consumers who obtain financing from these companies each year. In addition to all the matters just described
that would fall within the orbit of our supervision, the extension of our oversight to the non-bank
auto lending companies would also allow us to protect consumers better against the silent
pickpocket of discrimination. As anyone could see and hear, the Bureau has long expressed
concern about what we view as a serious problem. In March 2013, we issued a bulletin reminding
indirect auto lenders that it is illegal, under the Equal Credit Opportunity Act, for
a creditor to discriminate in any aspect of a credit transaction on prohibited bases,
such as race, religion, national origin, or sex, and that is so whether the discrimination
is grounded on a claim of disparate treatment or a claim of disparate impact, as federal
law has long provided. Simply put, discrimination hurts us all. Whether
in our personal lives or through transactions in the financial marketplace, discrimination
disadvantages people for reasons beyond their control, and it also hurts the larger economy
by artificially distorting the marketplace. It is both wrong and economically inefficient.
All consumers deserve an equal opportunity to access credit. In the auto lending market, we’ve expressed
our concern that policies which allow dealers the discretion to mark up buy rates beyond
an accurate assessment of a person’s credit worthiness creates risks of discrimination
that could impede equal access to credit, and in our supervisory experience, we have
found that when an indirect lender has a policy allowing a dealer to use its discretion to
mark up the loan, without regard to the actual credit profile of the consumer, and often
for financial reasons to benefit from that markup, the risk of discrimination increases.
Whether this is done openly and expressly, on the one hand, or silently and implicitly
on the other hand does not change the fact that the consumer has been financially disadvantaged
in violation of the law. Unbeknownst to the consumer, the discretion to charge distinctly
different rates can dramatically increase the risk of unlawful discrimination. Discriminatory markups in auto loans may result
in tens of millions of dollars in consumer harm each year. With the average loan for
a new car nearing $27,000, even a slightly higher interest rate can cost consumers hundreds
of dollars over the life of a loan. Where we have seen such discrimination, we’ve taken
action through our enforcement and supervisory tools. Last December, we announced our determination
that one of the nation’s biggest indirect auto lenders, Allied Bank, had pricing practices
that cost about 235,000 minority consumers many millions of dollars. In the largest resolution
ever in an auto loan discrimination case, we worked with the Department of Justice,
our strong partner, to obtain $80 million in remediation for these consumers. Allied
also had to pay $18 million in penalties for its actions. Other matters may result in further
enforcement actions, as the work and investigations we do in tandem with the Justice Department
remain ongoing. We’ve also taken action against auto lenders
through our supervision program. Today we’re publishing a new Supervisory Highlights Report,
which describes our efforts to combat discriminatory auto lending practices at other banks we supervise.
Here again, we’ve found that their discretionary markup practices have created greater risks
of fair lending violations, and, in fact, we’ve found that some of these practices have
resulted in discrimination against African American, Hispanic, and Asian and Pacific
Islander borrowers. This is not a minor matter. In total, these supervisory actions have led
to $56 million in additional relief to 190,000 further consumers so far, nearly approaching
the scope of relief provided in the enforcement action against Allied. In these cases, minority
borrowers were paying more for their loans than similarly situated, non-Hispanic, white
borrowers. Such discrimination is wrong and deeply unfair to consumers, and we will continue
to be aggressive about rooting it out of the market. We are pressing auto lenders to conduct more
of their own internal monitoring to prevent and remedy discrimination. Notably, our recent
supervision work has revealed that some lenders have done a much better job of managing their
compliance programs, and have been able to limit the size of the disparities in their
loan portfolios. We have previously suggested that one way to accomplish this result is
to eliminate dealer discretion to mark up interest rates, which some lenders are doing,
while finding other ways to compensate dealers appropriately for the work they do to secure
new loans. Another more intrusive way to proceed is by
developing and implementing more intensive compliance management systems that inevitably
involve lenders more directly in evaluating and correcting the practices of their dealer
networks, as embodied in the Allied enforcement action. In our latest report, we also note
that some companies have sharply reduced, but not eliminated, dealer discretion, which
has reduced the size of disparities, and may allow a solution that does not require dealer-specific
monitoring and corrective action. We remain open to discussing these approaches or any
others that appropriately address the risks of discrimination in auto lending. Finally, we’re responding today to what we’ve
heard about the need for more transparency by publishing a white paper that provides
greater detail about the mechanics of our approach to these issues, and offers new research
into the statistical validity of this approach. In order for us to evaluate whether a lender
is following fair lending laws, we need to know to whom the lender is extending credit.
Auto and other non-mortgage lenders are not generally allowed to collect demographic information.
Since they do not collect this data, our fellow regulators and we have developed proxy methodologies
to model this information as accurately as possible. As we indicate in our white paper, the Consumer
Bureau’s Office of Research, working in close collaboration with our exam teams, uses a
statistical approach similar to methods used by other federal financial regulatory agencies
and the Justice Department. In order to estimate consumers’ race and national origin, our researchers
use borrowers’ last names and place of residence. Census Bureau data allows us to calculate
the probability that an individual belongs to a particular race and ethnicity, based
on their last name and the demographics of the area where they live. By considering these factors together instead
of separately, we are able to more accurately assess which consumers are getting which loans,
and to spot discriminatory lending practice patterns. Much of this approach is fairly
well known in the financial industry, which already engages in similar modeling to gauge
its own fair lending risk, not only for regulatory purposes but also to manage the risks of private
litigation. But to ensure that lenders can replicate our methodology, we are releasing,
in an open source format, the computer code we use to calculate these probabilities. To echo President Roosevelt, consumers deserve
a square deal based on fair dealing. We are working to ensure that all consumers can have
equal access to financial opportunities. Cars and trucks can help people drive toward economic
success. Maybe it can take them to a new job or a new town, or maybe the goal is to save
commuting time so they can work longer or have more time with their families. Millions
of American families buy cars and trucks every year, more than 15 million last year, I’m
glad to say, for all these reasons and more. It’s important that the financing of these
products does not come at an unjustifiably high cost. The Consumer Bureau will continue
to work to ensure that people can get fair access to credit, on terms that reflect their
actual credit worthiness, that marketing is honest and factual, that the terms of the
deal can be made plain and readily understood, that companies are not furnishing wrong information
about their customers, and that people are treated with respect and dignity in the debt
collection process. As President Roosevelt framed the issue, “Each of us is entitled
to no more, and should receive no less,” and particularly when it comes to discrimination,
we will insist that this must be so, in accordance with federal law. Everyone must be treated
fairly. Thank you. [Applause.] Thank you, Director Cordray. At this time,
I’d like to invite all the panelists to take the stage, and while they are doing so, I’ll
briefly introduce the CFPB staff and guest panelists who will participate in today’s
discussion. Patrice Ficklin, the CFPB’s Assistant Director
for the Office of Fair Lending and Equal Opportunity, will facilitate today’s discussion. She will
be joined by the CFPB’s Deputy Director and Associate Director for Supervision, Fair Lending,
and Enforcement, Steve Antonakes, as well as David Silberman, the CFPB’s Associate Director
for the Office of Research, Markets, and Regulations. Guest panelists include Chris Kukla, Senior
Vice President, Center for Responsible Lending; Crystal Ratcliffe, Indianapolis Branch President
of the NAACP; Andrew Ault, Staff Attorney with the Indiana Legal Services; Steve Zeisel,
Executive Vice President and General Counsel with the Consumer Bankers Association; Paul
Metrey, Chief Regulatory Counsel with the National Association of Automobile Dealers;
and Bill Himpler, Executive Vice President with the American Financial Services Association. Patrice, you have the floor. Thank you, Zixta, and thanks to all of you
for joining us today to discuss the Bureau’s announcements and your experiences with the
auto finance market. Our mission is to markets for consumer financial products and service
work for Americans. We have also been charged, by Congress, to ensure fair, equitable, and
nondiscriminatory access to credit for both individuals and communities. I’m honored to be joined on this panel by
colleagues from across the Bureau, with whom my office, the Office of Fair Lending and
Equal Opportunity, works very closely in pursuit of those objectives. I also am honored to
have this distinguished panel join us. Today we focus on the auto finance market.
As Director Cordray highlighted in his remarks, the significance to this market to consumers
ranks third, only to mortgages and student loans. We know that more than $500 billion
in auto finance originations were made in 2013. For most consumers, borrowing money
to buy a car is a far more common experience than borrowing money to buy a home or pay
educational expenses. Our announcements today mark further advances in the Bureau’s work
to protect consumers from unfair and discriminatory practices in auto finance. We propose to bring
the larger participants in the non-bank auto finance market under our supervisory authority.
As many of you are aware, our supervisory authority represents a powerful tool to ensure
that lenders comply with the consumer protection laws under the Bureau’s jurisdiction. Indeed, our release of a special edition of
Supervisory Highlights, devoted to our supervisory work with bank auto lenders, underscores the
significance of our supervisory authority. As we detail the work that our exam teams
have done in identifying discrimination in pricing, and securing lender commitments to
pay approximately $56 million in damages to provide redress to up to 190,000 consumers. Finally, we also released a white paper on
a key tool that the Bureau uses to identify discriminatory practices when self-reported
demographic data are unavailable, our proxy methodology. It is our expectation that this
white paper will broaden awareness of recent enhancements to proxy methodologies that have
yielded significant gains in accuracy. With that brief introduction, I’d like to
turn it over to our panelists and ask that each of them offer 3 minutes of remarks. Once
they have delivered their remarks, our bureau panel will ask a few questions to facilitate
discussion among the panelists. Let’s begin with Chris Kukla, from the Center for Responsible
Lending. Thank you, Patrice. Thank you, Director Cordray,
and the rest of the staff at the CFPB for holding this hearing, and thank you for giving
us the opportunity to participate. For most families, the purchase of a car is
the largest that they will make outside of buying a home. Owning a car gives families
greater access to employment and increases their quality of life. According to a study
from the Brookings Institution, a typical metropolitan resident can reach only about
30 percent of the jobs in their metro area using public transit, and that’s assuming
a trip of 90 minutes or less each way. It’s no wonder, then, that TransUnion found that
consumers made paying their auto loan their top priority, even ahead of paying their rent
or their mortgage payment. Cars are vital to American families because, for most, keeping
a car and keeping a job are inextricably linked. In light of this fact, we can conclude that
auto finance, done well, expands access to economic opportunity and can sustain it. The recent rise in auto lending, particularly
in the subprime space, has attracted significant and ongoing attention in the media and elsewhere.
Many of these articles have focused on abuses that occur in this market. Unfortunately,
most of these abuses are not new. They have existed for some time. For instance, over
the past 2 decades, the practice of lenders allowing dealers to mark up the interest rate
for compensation has been the subject of regulatory scrutiny and lawsuits over potential racial
and ethnic discrimination. Despite significant evidence that this discretion often leads
to discriminatory impact, the practice continues. Lenders rely heavily on dealers to provide
the pipeline for loans. If the car is financed in the U.S., around 80 percent are financed
through the dealer. As such, lenders and dealers share responsibility for abusive lending practices.
Lenders set the terms for the loans they’ll accept and provide the pricing discretion
to dealers that has led to significant harm. We have learned, though, that in the recent
increase in auto lending, lenders have also relaxed their underwriting standards. Loan
terms are increasing as are loan-to-value ratios. This data can be an indicator of larger
issues in the market, and, in particular, whether these loans are truly affordable. As we learned from the mortgage market when
financial institutions rely heavily on third parties to generate loans, competition can
shift from providing the best loan to the consumer to providing the loan with the least
amount of underwriting restrictions and the largest compensation available. The mortgage
market would have benefitted from common-sense rules to ensure loans were affordable and
sustainable. Unfortunately, we did not act until it was too late for many homeowners
and lenders, but we can avoid the same mistake in this market. The regulatory patchwork covering auto finance
contributes to the endurance of these abuses, and consumer protection has, for far too long,
been an afterthought. Congress chose to split regulatory responsibility over consumer protection
in auto finance, separating dealers and lenders between different regulators. Nonetheless,
we believe that regulators can and should exercise appropriate oversight of those entities
under their jurisdiction. The larger participate rule is a welcome step
in the right direction. Auto lending is a fractured market with a wide spectrum of players.
The rule, as proposed, would bring many of those lenders under the same consumer protection
umbrella. It’s also important to note that while dealers and lenders have to follow the
basic rules that all lenders must follow, there are very few consumer protections specific
to auto lending on the federal or state level, and those that do exist frequently fail to
protect consumers against the abuses they’re purported to stop. Abusive and unfair practices,
like the significant pricing disparities that dealer interest rate markups create, need
to end. We believe that a robust car lending market
is important to American families and the American economy. In particular, making loans
to those with blemished credit or thin credit files can be helpful. However, the current
market requires safeguards to ensure that the market is robust and sustainable. Consumers
should trust that the auto lending market is transparent and fair. Abusive lending practices
eliminate that confidence and have no place in our credit markets. We welcome the opportunity to be here today
and we look forward to the rest of the discussion. Thank you. Crystal. Thank you, and thanks for having us here today.
The Indianapolis branch has seen a high rise in predatory lending with a lot of the people
that come through the college campuses, as well as low-income families. One thing that
we’ve looked at is that when somebody goes for a loan, a lot of times they’re looking
for, when it comes to, let’s say females, they’re actually looking for security, a car
with a secured system. Well, sometimes, as a low-income family, she cannot afford to
get one of the cars that she is presently looking at as a new car, so that takes her
to a used car, which, we know, then, is going to be a higher rate for her to secure a car.
If she’s late on that payment�let’s say a child gets sick and she has to pay a hospital
bill�then, once again, you’re looking at a lending practice that they’re going to pay
more, from 8 percent to even 13 percent. So we’re seeing a lot of trends like that coming
through from our single families. We’re also seeing a lot of our seniors coming
in that are trying to get car loans, because they can no longer have, as we’re told, bus
transportation, because we know the system has changed, so we have a lot of high predatory
lending with our seniors that are looking for cars. We also have a lot of our people
who have retired from the automobile industry, knowing what people have gone through, that
are actually having problems themselves getting car loans. I know, even myself, as a UAW worker,
I went to obtain a car and they did not even have me in the system. So, through that, it
took me over 2 months to obtain a new car. So I know there’s a lot of things out here
that we could talk about, as far as when we actually look at the verbiage of the predatory
lending. We’re talking about everyday people. We’re looking at people that don’t have the
opportunity to actually get out and have better credit. Now I know, also, when we were talking about
our college students, we have a lot of college students that are going out getting loans
because people are soliciting them because they are first-time buyers. So when they go
and get these loans, what happens is they get a loan, their parents don’t know they
have a loan, they come in with this new car, and then, all of a sudden, the parents are
responsible for taking care of the loans. Once again, that’s putting somebody in another
higher bracket of paying for an auto loan. So when you start looking at predatory lending,
you have to look at who all is engaged in this through our community. I know we get
a lot of things, also, through some of our different partners, that they were talking
about, that they have people that come in and their loans are like�let me see if I
can put it in a little better fashion�a mid-grade, if they were able to get it through
a third-party lender versus getting it through the dealership. What we’ve found is, in some
of the areas that people live in, that these particular car dealerships are where a lot
of the people go to get these loans. I’m not going to call any names, but when those people
get there, they get loans that are definitely anywhere from 13 percent or higher, and the
reason why that happens is because they have to go to these particular car dealers to get
the loans. So, regardless of what kind of car it is, if it’s a new car or if it’s a
used car, these are the lots that they’re using to get these car. So there’s a lot of people that we know out
there that are being targeted, and, once again, like I said, you even have your people that
have lost jobs, that are still in the same situation, as middle-class citizens, trying
to obtain these loans that are being put in the same situation as people that have been
in low-income families for a while. Thank you, Crystal. I neglected to introduce
you. Crystal Ratcliffe of the Indianapolis Branch of the NAACP. Now we’ll hear from Andrew
Ault, Staff Attorney, Indiana Legal Services. Thank you. In representing car customers,
I’ve found that the impact on the auto financing has another part to consumers’ lives as immense,
particularly if the consumer is put into a bad financing deal. A bad financing deal means
that the consumer may not be able to pay other bills, such as a mortgage or other essential
expenses like utilities. Further bad financing deals often lead to a repossession of the
vehicle, and for most consumers, this is a major, life-changing event. For the consumer, there are serious consequences
to a repossession that is predicated upon bad financing. First, the consumer is often
left penniless. Consumers routinely put down all of their cash reserves to make a large
down payment. Oftentimes this money comes from tax refunds or any other cash the consumer
can come up with. If the car is repossessed after a bad financing deal, that money is
rarely, if ever, returned after repossession, even if the customer has had the car for only
a few weeks. Second, repossession caused by bad financing
usually leaves the customer wholly without transportation. Most consumers have only one
car for themselves, so at the time of a purchase, in addition to making a large cash down payment,
many, if not most, deals involve a trade-in of the consumer’s only other prior car. That
trade-in is swiftly sold by the dealer, so if the new car is repossessed, the old car
cannot be recovered. So if a buyer enters into a bad financing deal, in the end they
are generally left completely penniless and without a prospect for necessary transportation. What this means is that in addition to losing
cash and credit, the consumer could also lose their job, and, for example, if they’re in
college, maybe a semester in college. Under either of those scenarios, the customer stands
to lose thousands upon thousands more dollars in lost wages and nonrefundable student loans.
That’s on top of the thousands in down payment and vehicle value that was already lost due
to repossession, predicated upon bad financing. Public transportation is usually not a viable
option. Public transportation’s reach is very limited here, in Indianapolis, and in many
other parts of the country. It cannot be used for all of a person’s needs. Repossession
predicated upon bad financing can impact a person’s ability to regularly see their doctor,
affecting health and earning capacity, the ability to have child visitation, go the store,
and it just affects every aspect of a consumer’s financial life. Consumers are aware that their vehicle is
critical to their well being, so if they’re in a bad financing deal, be it overpriced
or on other bad terms, if they didn’t really know what they were signing up for or thought
they were signing up for, they’re choosing to put off mortgage payments and other essential
payments to make sure that they can still maintain their earning capacity by having
a vehicle to go to their job. By doing so, they risk foreclosure, bankruptcy, utility
shutoffs, and other negative financial consequences. And, finally, dealer-arranged financing puts
a major hit on a person’s credit. When a consumer consents to have his credit pulled for dealer-arranged
financing, they’re not aware of the number of companies that will see their credit, and
for each company that does see the credit report, it lowers the credit score of the
person whose report is viewed. If, after that, poor financing leads to repossession, their
credit may not be good enough to secure another car loan. So, in conclusion, auto financing is a critical
part of most Americans’ lives. Poor financing and repossession are major life disrupters.
Anything that can be done to increase transparency and fairness in the auto lending market is
a hugely positive development. Thank you. Thank you. Now we’ll hear from Bill Himpler,
Executive Vice President, Federal Government Relations, of the American Financial Services
Association. I’d also like to join Chris in thanking the
CFPB for inviting AFSA and its members to join in today’s discussions. We think this
is very important. Let me say, at the outset, and make very clear,
that AFSA and its member companies do not tolerate discrimination. It hurts businesses,
it hurts the economy, and, most importantly, it hurts consumers, and, after all, the vehicle
financing industry is all about customer service. We stand shoulder-to-shoulder with the Bureau
in our commitment to ensuring that consumers are treated fairly and have the best possible
buying experience they can. We welcome to opportunity to dialog with the CFPB because
we continue to have concerns about the Bureau’s vehicle finance guidance and the white paper
that was released yesterday. I must admit, though, that I am a little disappointed.
The Bureau goes to great lengths to protect the transparency of the agency and yet there
were some panelists that did not receive either of these documents until we arrived here in
Indianapolis, and yet, at the same time, the media had it and asked us for comments. This
is a very important issue and I would encourage the Bureau to continue its young history of
transparency, especially in this area. I think we’d have a more robust discussion. Now, back to the white paper. It does provide
a technical explanation as to how the CFPB calculates its proxy methodology, and that’s
a huge step in the right direction, and we commend the Bureau for doing that. However,
it has taken the CFPB 16 months to reveal how it calculates BISG, or it proxy methodology.
In addition, we’re concerned that the white paper does not describe how it estimates disparities,
leaving more to be said on this subject. The white paper does confirm that BISG, or the
proxy methodology used by the CFPB, overestimates the number of minorities in a lender’s portfolio,
but does not mention how the CFPB plans to account for that. AFSA has undertaken an extensive study, to
deliver later this fall, with respect to the BISG methodology, and we believe that the
study will show that the CFPB’s overreliance on BISG methodology skews the results. We’ll
also show, hopefully, as has been reported in many media outlets, that the automotive
industry remains strong, continues to get stronger following the crisis in 2008, it’s
competitive, very fragmented, thousands of players, and it’s an integral part of the
American economy. Most importantly, we think our study will show that the auto finance
industry is focused on providing the most positive experience for the consumer. We also have concerns with respect to the
white paper in that it does not consider the economic impact of altering the vehicle finance
market, such as flat fees that the Director mentioned in his opening remarks. Take this
one solution that was provided by the Bureau as an example that we think that the Bureau
has not fully thought out this one particular solution, and we look forward to working and
dialoging with the Bureau on that particular solution. We know, quite simply, that flat fees would
increase the cost of credit for consumers. Those on the margins would be hurt the most.
They would either be forced into higher-priced financing, lower-priced cars, or be forced
out of the market altogether. Further, the proposed solution for flat fees, from our
perspective, does not solve the discrimination problem that the Bureau alleges. My friend,
Paul Metrey, and the auto dealers, have put forward a legitimate solution that has won
some favorable comments from the Justice Department, and we think the proposal that they have put
forward is consistent with our lending members’ comprehensive credit compliance efforts. We also remain somewhat baffled as to how
the CFPB can find disparity at the portfolio level if no disparities exist at the retail
level. I would be remiss if I did not mention the larger participant rule that the bureau
came out with. We remain concerned that the Bureau continues to issue larger participant
rules that capture market participants that, for lack of a better word, are not large by
any stretch of the imagination. Many of the market players that will be subject to the
new rule have well below 1 percent of market share. According to Experian, the top 30 lenders
in this space have less than 1/2 of 1 percent of the auto finance market. Above all, the vehicle finance industry wants
to comply with the law and regulations that are set forth by the Bureau, as well as continue
to play a positive rule in our American consumer experience. As an industry representative,
we stand ready to work with the CFPB to develop workable regulations that protect consumers
and simultaneous ensure that the American public has access to safe and affordable credit.
Thank you. Thank you. Next we’ll hear from Paul Metrey,
Chief Regulatory Counsel, Financial Services, Privacy, and Tax, National Association of
Automobile Dealers. Thank you, Patrice, and thank you, Director
Cordray, and all your colleagues at the Bureau for the opportunity to participate in today’s
field hearing. As we have stated on numerous occasions, and
will continue to state emphatically, the National Automobile Dealers Association strongly opposes
discrimination in any form, and fully supports the efforts of the CFPB, the Department of
Justice, the Federal Trade Commission, and other federal agencies to eliminate it from
the marketplace. Our commitment to this goal extends well beyond statements. In January of this year, NADA, along with
the American International Automobile Dealers Association and the National Association of
Minority Auto Dealers, NAMAD, released to each organization’s members the NADA Fair
Credit Compliance Policy and Program. This publication provides a comprehensive framework
that a dealer can adopt to ensure its pricing of consumer credit fully addresses fair credit
risk while preserving the overwhelming consumer benefits that result when the dealer has the
flexibility to discount its rates to earn its customers’ business. Our program fully
adopts, and, indeed, adds to the very well-thought-out, fair credit risk mitigation model that the
Department of Justice developed in 2007, to resolve fair credit cases involving two auto
dealerships. Of course, the NADA program, as with any compliance
mechanism that is designed to address fair credit risk at the retail level, can only
be effective if finance sources are encouraged, not discouraged, to incorporate such a program
into their compliance management system. However, regrettably, this is not happening today,
and the central reason it is not happening is because the CFPB has insisted that it is
not sufficient for a finance source to implement a compliance program that is entirely effective
at safeguarding against the possibility of credit discrimination at the retail level
if, in the aggregate, there remains an apparent pricing disparity at the portfolio level. The Bureau’s position is regrettable for two
reasons. First, it serves no public policy purpose. Indirect vehicle financing transactions
consist solely of secondary market sales from retailers who are independent of the finance
source, and who, as with other retailers, establish the retail margins based on local
cost and competition considerations. If these businesses price consumer credit in a consistent
manner for all of their customers, regardless of their background, then any aggregate pricing
disparity that exists at the portfolio level, as a result of these different retail margins,
reflects nothing more than a fully functional and competitive marketplace. It does not reflect
an injury to consumers. Second, by maintaining that retail level compliance
mechanisms fail to address finance source responsibilities at the portfolio level, the
Bureau is missing a golden opportunity to encourage the adoption of programs that address
fair credit risk where consumers obtain their financing at the retail level. Despite these concerns, our collective focus
moving forward should be on solutions. This is why NADA created its Fair Credit Compliance
Program, and this is also why we remain hopeful that the Bureau, in close coordination with
the federal agencies that Congress entrusted with oversight over dealers, will work with
key stakeholders to identify and approach to fair credit compliance that is both meaningful
and viable, and that preserves robust competition for the marketplace. Thank you. Thank you. Last, we’ll have Steven Zeisel,
Executive Vice President, General Counsel, Consumer Bankers Association. Thanks, Patrice. Thank you for inviting me
to speak on behalf of the Consumer Bankers Association today, and for holding this hearing,
which I think is incredibly useful for everybody, and I really appreciate the effort you put
into holding this, and thank you for giving me the last word, also, which is a nice luxury
there. First, let me say, Consumer Bankers Association,
CBA, is a national trade association representing the interests of America’s retail banks. We
have active committees working on issues, including auto finance and fair and responsible
banking, and I’m pleased to be able to share the views of our members today. CBA member
financial institutions are 100 percent committed to fair lending and responsible banking. We
believe we have a strong track record in that regard. Our performance has reflected a commitment
to compliance and a strong belief in the importance of fair and responsible banking. In fact, CBA has long been a supporter of
the CFPB’s non-bank supervisory authority, Section 1024 of the Dodd-Frank Act, in part
for that very reason. Consumers should expect similar standards to apply to both bank and
non-bank lenders. There’s no reason people should be given different treatment based
on charter differences that mean nothing to them. We strongly believe CFPB should hold
bank and non-bank lenders to the same level of accountability for similar products and
services. That is why we are pleased to see the CFPB proposal to supervise larger non-bank
financial services companies in the indirect auto lending arena. What we will be looking
for, as we look at the proposal and develop our comments, are indications that the Bureau
will hold similarly situated non-bank auto lenders to the same standards that it applies
to bank indirect auto lenders. In that regard, as to what those standards
are, when the CFPB issued the Indirect Auto Bulletin back in March of 2013, it raised
some concerns in the industry. As I said, I think banks felt pretty confident about
their compliance process, to date, but the bulletin definitely raised new questions about
how the CFPB intended to tackle some of those compliance issues, and some of the more challenging
aspects of fair lending compliance in an indirect auto space, and what it would expect of the
lenders that it supervised. We were also concerned that the bulletin raised
expectations for compliance and enforcement but had not been issued as a regulation, and,
therefore, was not a rule, and it didn’t have notice and opportunity for public comment
and input from all parties, which I think, given the complexity and the difficulty of
the issues involved would have been warranted. It also, as a result, did not apply, or did
not appear, at least, to apply equally to all lenders across the board, at the time,
obviously, the non-bank lenders but also other lenders of banks of different sizes, below
the CFPB’s threshold. The challenges in this area are many, because
the indirect lender is really a secondary market for loans made by independent dealers.
As has been said, the lender doesn’t deal directly with the consumers and does not know
their race or ethnicity, so they have to rely on these proxies for protective classes when
they do their reviews and monitoring in anticipation of any compliance expectations. Yet, the lender
is being held accountable for statistical outcomes, in some cases, in the portfolio
level, on loans acquired from hundreds, or, in some cases, even thousands of independent
dealers, and for monitoring dealer behavior, based on sometimes a limited subset of the
dealers’ loans that the lender actually acquires. We are very pleased, by the way, to see the
proxy methodology white paper come out. This is something we’ve been asking for for a long
time, is to get some clarity around that issue, so that the CBA member banks and others can
know kind of what those expectations are, so that they can be fully compliant with the
law, which is what they are trying to do in this case. The indirect auto lending market has been
beneficial to consumers. Dealers, as you have said before, are entitled to fair compensation
for their efforts, and we want to make sure that whatever happens doesn’t undermine a
strong and effective sector of the economy. We have discussed industry concerns before
with you, and with the CFPB, and we’re pleased to do so again. Thank you for allowing us
to be part of this conversation. Thank you. I’d like to kick off our discussion
portion of this panel by asking a question of Steve and Bill. What aspects of the auto
financing market distinguish it from other markets that the Bureau supervises? Well, let me just start and then I’ll pass
it on to Bill. Obviously, as we’ve said, the auto finance market is unusual in a number
of respects, aside from its vibrancy. It is a third-party relationship, and the bank is
not the originator of the loan. The dealer is the originator, and what we’re calling
the lender here, the assignee, in a sense, purchases a retail installment sales contract.
So, in acquiring the finished product, they’re getting an enforceable contract. The bank
is not present when the customer arranges the terms with the dealer, the indirect lender
is not present when the customer arranges the terms, and that creates challenges in
the fair lending space, particularly for compliance purposes. I don’t know, Bill, whether you
want to add anything. Oh, I definitely want to add a few things,
Steve. The auto finance industry is very broad. It’s like the old Oscar Mayer wiener commercial�big
kids, tall kids, skinny kids, fat kids, even kids with chicken pox. We’ve got lenders of
all sizes, of all types of charters, banks, credit unions, finance companies, captives,
independents, and it’s very fractured. And, as I said in my statement, once you get below
the top 30, and that’s both bank and non-bank, you’re getting into miniscule amounts of market
share. It’s very different, and I think Chris mentioned
in his comments, drawing on some history from the mortgage space and the problems we had
there. In the mortgage space, that’s largely driven by social policy, GSEs. You had a few
large lending institutions. Touching any of one of them could move the market. The cards
are dominated by the banks. There’s no such domination that you see anywhere like that
in the vehicle finance space. Second, it’s transparent. Unlike in the mortgage space,
where you need to get an appraisal to figure out what your house is worth, or the house
you want buy is worth, all you have to do is look in Kelly Blue Book on any vehicle
and you know right away. It’s not a mystery what the value is of the asset that we’re
working with. [Laughter.] You know, wind me up and let me go. The vehicle
finance market is unique in that we have a large segment, that are in this space, that
are state-licensed finance companies like a number of AFSA members, using their own
capital to create a market that’s been around for 100 years, and it’s been effectively regulated
at the state level for 100 years. I’ve told a number of my friends at the CFPB that one
of the concerns that I continue to have�and this is not a fault; it’s just a reality.
Washington, D.C., is a bank-centric town. Finance companies is a new animal there. I’m reminded that our friends at the Federal
Reserve�so I won’t hold you accountable for what the Federal Reserve said, but in
1920, in July, the Federal Reserve issued the following statement: “Do not finance automobiles
used for pleasure.” If that were the case, no one here today would have come in a car.
We would’ve all walked. So I would ask you to keep that in mind. Thank you very much, Bill. Good morning, everyone.
Thanks, everyone, for coming. Crystal, my next question is for you, and what I would
ask is, specifically, what are you seeing in Indiana communities with regard to auto
finance? Well, in the communities, I’m seeing, really,
right now, we’re seeing a lot more auto loans, so I can’t say that people that people are
just buying them for pleasure. I can say that there is a need for autos. So, right now,
as far as community-based, I think people are trying to get cars, and we haven’t heard
a lot of complaints on the high end, but on the low end we know that people are still
overcast with what they’re paying for automobiles, high interest rates. Paul, let me ask you a question. Bill and
Steve talked a little bit about the factors that differentiate the auto industry market.
Can you talk about what unique challenge exist in the auto finance market for industry players? Certainly, and, actually, just to supplement
something that Steve and Bill said, in terms of a distinguishing factor for this asset
class, once you really look at how it compares to other asset classes, look at asset-backed
securities. Look at delinquencies. Look at defaults. It is exceedingly strong. It is
exceedingly strong because it’s based on a very strong underwriting model. They’re not
looking at speculation that the collateral will increase in value. They are looking primarily
at the repayment ability of the borrower, so they’re honed in on precisely the right
factor, and the results are reflective of that fact. In terms of unique challenges, there are many.
Certainly what we’re talking about here is one of them. It is a highly competitive marketplace,
and that’s a good thing. That’s a healthy thing. That certainly benefits customers.
It requires businesses that want to survive in that market to deliver superior customer
service, to provide very competitively priced products, and to have a very strong efficiency
of operations. On the compliance end, there are also challenges,
and I think relevant to our discussion today, there are a couple of them that I would just
flag very briefly. It’s already been touched on, the whole issue of regulatory uncertainty.
The Bureau has released a paper to weigh in on that area. That certainly is a concern
when there are regulatory standards that are applied, and you are not clear on what your
compliance duties are. One thing, in our own analysis of the paper, we’ll be taking a close
look at is not just how it treats the issue of proxies�are you putting customers in
the right buckets for comparison purposes?�but, also, are they similarly situated? Are you comparing apples to apples? Are you
comparing somebody that received a subvene rate against somebody that received a non-subvene
rate. In that situation, the dealer’s compensation is going to vary, and it’s not based on the
customer’s background. It’s based on an independent business factor, in this case the presence
of a subvention program. Analytical controls are absolutely critical to look into this
issue, and we hope certainly is brought to bear on that topic. And, finally, I would just talk about the
issue of viability. It is extraordinary important that when clear direction is provided, that
that direction be viable. One example I would hit on, and Bill talked about it a moment
ago, is the whole notion�and the Bureau has stated this repeatedly�that you can
eliminate dealer discretion at the finance source level as a way to achieve compliance.
The fact is, that is not achievable. As long as dealers have multiple finance source partners
who are competing with each other, you are not going to eliminate dealer discretion. You may shift the exercise of it, but whether
it’s on the wholesale buy rate or it’s on flat fees or anything else, as long as you
have multiple finance sources competing for the dealer’s business, and the dealer is the
one that decides who they send the paper to, you have an exercise of discretion. And in
this arena, our hope is that the Bureau will focus its efforts not on the false hope that
you can eliminate discretion but on the real hope that you can manage it in a way that’s
very effective for consumers. Thank you, Paul. Chris, the next question
is for you, and, basically, what we’d like to hear is, in your experience, what risks
do consumers face in the auto finance market? I think there’s a significant number of risks
that consumers face in this market. I think, first and foremost�and this has been alluded
to earlier�is that this is a complex transaction. You’re talking about someone going in to buy
a car. They have to negotiate the sale. They have to understand what they’re buying, what
goes into that. They may have a trade-in, and they have to understand what the value
of that trade-in is, how the trade-in process works, and how to negotiate that. And then,
in the financing portion of it, you not only have the financing itself but you also have
a myriad of add-on products that are being offered to the consumer, many of which are
complicated. If anyone has looked at a disclosure sheet
for an extended warranty, for instance, you can see it goes pages and pages about exclusions
and differences in what they cover. You almost need an advanced degree in automotive technology
to be able to figure out what it all means. For consumers, it may be very difficult to
figure out whether that particular warranty product is good for them, but also whether
or not it compares to a warranty that’s being sold by a different dealer, because the warranties
will be different. That also leads to a lack of transparency.
This is one of those cases where disclosure is great until disclosure is used as a shield.
If you make the disclosure large enough, long enough, and complicated enough, eventually
consumers really don’t know what they’re signing on to. They sign it anyway, and then it’s
used as a shield against them later, when they try to raise issues about whether or
not the product was suitable for what they had, because it was in there, it’s disclosed,
and paragraph 7, subsection b, where it says that this particular part of the car is not
covered under the warranty. We’re concerned, also, with increase in loan-to-value
ratios and longer loan terms. The average loan term now is 66 months. You’ve had three
different representatives of manufacturers come out recently, talking about concerns
about stretching loan terms out farther and farther. We believe that this does two things.
One is it masks affordability. Stretching out the loan term longer and longer doesn’t
necessary make the loan affordable. It just stretches out the loan term. It may make the
monthly payments seem affordable, but over the long run it may not be. The second is that it can increase levels
of negative equity. The longer you’re in the car, the more likely you are to be underwater,
particularly if you’re talking about a long loan term coupled with a used car, where the
collateral may or may not exist over the life of the loan. You run the risk that the person
is going to owe more on their car than it’s worth, and there’s always someone willing
to help you wrap that negative equity into the loan. Finally, I just want to make one point, because
this has been something that’s popped up a lot, is comparing the delinquency and default
rates in auto to mortgage lending, and comparing those rates side by side, we believe is misleading
and for one important reason. It takes much longer to foreclose on a house than it does
to repossess a car. On average, the foreclosure process last summer was between 300 and 400
days. The average days to repossession is in the 40 days. The mortgage delinquency rates
look high because there are a number of loans that stay on the books for a good long time
and stay on the delinquency report for a long time. If banks were able to repossess a house
in the way that they were able to repossess a car, delinquency rates and default rates
would actually look much lower. So I think if we’re going to be talking about an apples-to-apples
comparison of those rates, looking at more than beyond just the point-in-time rate of
the delinquency rate, but looking at cumulative rates would be an important thing to do, as
well. Thank you, Chris. Thank you. I have a question for Crystal and
for Steve. Some reports point to a recent uptick in extension of credit to borrowers
with blemished credit histories. Have you observed this development? What are the potential
risks and benefits of extending credit to this group of consumers? We’ll start with
Crystal, and then Steve. The increase of�could you repeat that again? The increase of extending credit to subprime
borrowers, borrowers with blemished credit. We have seen that there has been an uprise
in lending to people with a little less credit. We’ve seen that by the way that there’s a
lot more automobiles out there. There’s a lot more people that are trying to obtain
credit. But, once again, we’ve seen those through the inner-city car dealerships that
also have a higher rate of lending. So we do have a lot more cars out there, but when
people need a car, they go out and get a car, and they don’t necessarily like to tell you
their personal business of the fact that they’ve had to look at that through a higher lender. Also, we see where they’re getting a lot more
used cars, so with the used cars we know the interest rates are a bit higher, as well.
But there are a lot of people out there that are buying cars, because they’re in need of
them. Yeah, absolutely right, and I think there
has been, apparently, an uptick in lending to people with damaged credit, and my understanding
is it’s up from the trough in 2009, but it’s not at the level it was pre-crisis. I believe
you’re absolutely right. People need to get cars, and the Brookings study showed 90 percent,
as you alluded to, of people say they need cars to get to work. Unfortunately in our
society, public transportation is not always as available as it ought to be, for a lot
of people. There are a good number of people with blemished credit, and they need access
to credit. The wonderful thing about this market is that
it is available to them. That’s the good news. There is danger there, too, and I think people
with blemished credit have fewer choices, in some cases. They’re often either based
on their location or simply their credit. And they have to be more careful, maybe, than
others. But the opportunity is there. I think that the concern there is to prevent fraud,
to protect them from deceptive practices, from steering, and that’s critical in this
place, but it’s also important. Disclosure are important, and consumer literacy is important. I want to go to a point that you made, Chris.
It’s certainly true that disclosures can be too much, and, at times, you can over-disclose
and people don’t get much information because you’ve thrown too much at them. But it is
also true that more and more things somehow, you have to tell the consumer, somehow, so
that’s the challenge. That’s the tension there, between the need to give them lots of information,
whether it’s legally or contractually or regulatorily, but, at the same time, you don’t want to over-disclose
and create a problem, confuse the consumer, and create an opportunity for deceptive practices.
So that’s the tension that I think you have to deal with there. Bill, I want to shift the conversation a little
bit. We’ve been talking mostly about purchases of automobiles, but as Director Cordray indicates,
there are indications of an uptick in auto leasing. Can you talk a little bit about that
leasing market, and what trends and risks you’re seeing in that market? Thanks, David. Before I do that, if I could
just make one quick comment with respect to� And if we were to say no, what would happen? You know me well, David. Anyway, I think it’s
important to at least state this. There may be an uptick in lending to subprime customers,
but that’s not necessarily a bad thing. We need to remember that credit is an opportunity,
and what the uptick demonstrates is that lenders are willing to, following the crisis, based
on performance, go deeper to help folks that need access to transportation to get to jobs.
I’ve mentioned this to Steve before. Nobody would question extensions of credit to somebody
that’s carrying around a Black AmEx card, but in the subprime space, we don’t have any
problem talking about wanting to ratchet back, because they might be taken advantage of.
At the same time, you’re the regulators, you need to be diligent, to make sure that they’re
treated fairly, but we do need to remember that we’re a credit economy, going all the
way back to before our country was founded, and credit is a good thing. It helps people
build wealth, get jobs, and we can’t lose sight of that. So, I’ll get off my soapbox. With respect to leasing, I think it’s just
one more way of offering consumers choices of how they want to finance a vehicle. I said
at the outset, with respect to the Oscar Mayer commercial, consumers are exactly the same.
You have consumers that have all sorts of different needs and desires, in terms of what
they want. I work with plenty of folks that want a brand new car every 2 or 3 years. They
want the new technology. Leasing makes a lot of sense. I’ve got two kids in college, so
I’m driving around in a 10-year-old car that’s been paid off. I mean it’s different needs
and wants. I do think that it’s an important thing. I
think that the increase in leasing means that the economy is growing in strength. With respect
to risk to the consumer, I think it actually removes a risk to the consumer, because the
finance source actually bears the residual value risk of the car that the consumer is
turning in at the end of the contract. Great. Thank you, Bill. I’ll also note I also
drive a 10-year-old, paid-off car. I knew I liked you. Also, I just want to clarify,
as well, that I think the Bureau would be quite supportive of an expansion of responsible
subprime credit, just also being mindful of the increased risks to underwriting and other
factors that exist in that marketplace, as well. With that, let me go back to Andrew, and,
more broadly, back on the auto financing side. What I would ask Andrew is, more broadly,
what impact does auto financing have on other aspects of consumers’ lives, in your experience? Thank you, Steve. It has a tremendous impact.
Before you get to that impact, that impact is multiplied by many times if it’s a poor
loan, if it’s either high-interest or it contains markups or warranties that weren’t necessarily
desired. And I just wanted to say, respectfully, to the gentleman, while I’m sure that it is
the goal of dealers to provide superior customer service, we can’t ignore that, of course,
the point is also to maximize profit margins, and when those lending contracts are sold,
be they good or bad ones, and particularly the bad ones, the dealer has no incentive
to write, necessarily, a safe loan. When it does happen, a bad loan is written,
a bad auto loan, then cash is gone, usually, for most consumers. And in the case of repossession,
then can have a lowered earning capacity, based on lack of transportation and consequential
damages�I’m an attorney�such as student loan liability, or things that happen because
their car was repossessed, because they couldn�t afford the loan, or because they wanted to
put in some things that weren’t necessarily agreed upon. Bankruptcy is always an option,
and a necessity, at times, when the loan cannot be repaid, and overall living conditions,
and utility shutoffs. But I think worse credit than when they came
into the dealership is also a major financial obstacle, because of the many credit pulls,
and also because of maybe the high loan that they later defaulted on, because they couldn’t
afford it in the first place. Thank you. Thank you, Andrew. I’ll just note that I drive
a 13-year-old, paid-off car, and I am also using it to teach my high school senior to
drive. A moment of silence. Sorry to hear that. [Laughter.] I have a final question for all the panelists,
starting with Steve. What information do consumers need to make informed choices about auto financing? I thought I was going to get the last word
again. No. This time Chris will get the last word. I’m in trouble now. Thanks, Patrice, for that
question. I think that goes a little bit to the point I was talking about before. Consumers
have the Truth in Lending disclosures, obviously, so they have the APR. The APR is supposed
to be sort of one piece of information, one rate that you can use to shop for credit.
That was the original concept from the Truth in Lending Act. It was to keep it simple,
in a sense, and to get past that complexity of rates and financing charges, and the like.
But that’s simply one factor in indirect auto loan transaction, and the challenge there
is that the consumer has to be aware of the other factors. The main thing is that consumers are in a
position where they have to negotiate terms, and I think it would be very critical for
consumers to have a good, firm understanding that they can negotiate the terms, and that
they have the information they need on which to make those decisions. I’m hoping that the
Internet might help in that process, as well, and I think that as consumers gain more understanding
of that, they should become better consumers and get better terms in the transaction. I would echo Steve’s observations. Certainly�and
I think this is an area where we have agreement with Chris on this point�simplicity in this
arena is certainly preferred, and as Steve was alluding to, the Federal Reserve Board,
in implementing the Truth in Lending Act, and putting out Reg Z, that is precisely what
they did. They really came down to some core, highly relevant terms that consumers needed
when they execute a credit contract, to be able to understanding the cost of credit and
engage in cost comparison shopping. And we’re all familiar with what those are. They are
the APR and the finance charge, and so forth. So, fortunately, they’ve looked at that issue,
and they also concluded, in doing so, that the APR is really the single most relevant
figure for cost comparison purposes. When you look at that, you are in the best position.
You are comparing a retail price from one offer to a retail price from another offer,
and you get the best idea of how it stacks up, relative to the other offer. In addition to the Truth in Lending Act disclosures,
though, I think all of us, collectively�government, industry, consumer groups, all of us together�have
an interest in promoting financial literacy, and there have actually been some phenomenal
efforts in that regard, that have really advanced that objective forward, and we think more
can be done and should be done, and we’re eagerly pursuing those opportunities. Let me just talk about a couple of tools.
Of course, I think many of us are familiar with what the Federal Reserve Board put out
years ago, “Keys to Vehicle Leasing.” They coordinated with numerous groups, including
NADA, to try to provide consumers with a very simple pamphlet that would lay out exactly
what leasing is. More recently, the AFSA Educational Foundation, and the National Auto Dealers
Association, in cooperation with the FTC, issued a brochure called “Understanding Vehicle
Financing.” This also spells out very important terms, and it’s something that’s very well
regarded. Now, I will tell you, both Chris’ members
and our members, and Steve’s members, were all involved in these different efforts to
get out information. One of the efforts in this regard is the AWARE coalition. The website
for it is autofinancing101.org, but the whole idea is to offer consumers a suite of products
to help them understand this process, and without going through what all those products
are�clearly we don’t have the time for that�I’d like to just hone in your attention on one
that we think is particularly effective. When we talk about consumer education, the
concerns is always, you have to give it to a consumer in a form they can understand and
digest, and something they’ll actually read, so being succinct, being concise, being clear,
obviously, is critically important. One of the tools that the AWARE coalition produced
is something called the Wallet Card, and, as the name suggests, it is something that
fits inside a wallet, and, really, it gives four things to do before going to the dealership,
four things to do while visiting the dealership. Again, this is all in the interest of simplicity
and promoting understanding. Without going through each of them, one of
them, in terms of things to do before going to the dealership, is to compare annual percentage
rates, that’s the APR, from other sources such as banks, finance companies, and credit
unions. Now, I’m not sure how many industry players are in the habit of telling consumers
to go first to their competition, but that’s precisely what is recommended here. On the
other side, when they’re actually visiting the dealer, several things, but one of them
is what was already mentioned by Steve�negotiate your finance arrangements and terms. So we think that there are great opportunities
to put highly relevant information into the hands of consumers, and certainly enhance
their understanding of key terms when they make a purchasing decision. They may not be a lot I can add to what my
colleagues have said, but I’ll name two things that consumers can do. One, to put it more
succinctly than what Steve and Paul have said, is shop. Check out different funding sources.
Check out different dealerships. That’s the first thing you can do. And the most important
thing you can do, and hopefully it addresses some of the concerns that my friends at the
other end of the table have raised, is if you don’t understand something that’s been
put in front of you, in terms of the transaction, don’t sign it. It’s that simple. The car will
be there tomorrow. Paul’s members will have plenty of cars there later on that week. If
you don’t understand it, don’t sign it. I think consumers need a lot of information.
Some of the most important things is that you don’t have to take dealer financing. I’m
not even sure that a lot of consumers know that, that they go to a dealership and that
there’s other ways to get financing. I think they need to know that if they do opt for
dealer financing, their credit is going to be pulled 10 to 20 times, and that that could
lower their credit score. And I think the education about needing to
shop is very important, although it is a very difficult environment, because that’s the
dealer’s whole point is to stop your shopping so you can buy with them. But, yeah, I think
that’s true, that you do have the option to shop, and that you should shop and not become
captive to whatever situation you are in, and to make an informed decision to not sign
anything that you don’t have to sign, which, of course, you don’t. I think one thing that would be very helpful,
when we talk about education, that there would be some type of advocate when somebody goes
to shop for a car, that they know once that they don’t understand a contract or something
completely, that there’s an advocate there to break it down in laymen’s terms for them.
You have a lot of people that are desperate at that point, when they go to buy an automobile,
and if they do not already do any type of banking, then they don’t know anything about
other financial institutions. So the best thing to do is to try to find
a network that they could even go through, community-based organizations, to help them
through some of these processes, as far as forms and things like that, and really know
what it is when they see the different acronyms and things like that, to explain that to them.
A lot of us know that, but when you look at the community, as a whole, there are a lot
of those things that they don’t what’s in contracts, so they’re not familiar with what
they’re doing, or all they know is that we’ve bought cars from this particular dealership
through a generation, so that’s what I’m going to do, even though it�s not conducive for
me. So I just think there’s a lot of education
that needs to be out there for people to understand, when it comes to long-term and different contracts
that they’ll be trying to sign. I think one of the fundamental difficulties
in all this is that the person sitting across the desk from the consumer is always going
to know more than the consumer does, because it’s their job. The salesperson knows more
about what’s going on than the consumer will. The finance manager will generally know more
than the consumer will, because those folks are going to do more deals probably in one
day than a lot of consumers are going to do in a lifetime. So expecting consumers to develop
expertise on a par with the person sitting across the table is a fruitless exercise.
I think unless you have strong rules and you have protections for consumers, consumer education
is pretty well meaningless. Take one example of a survey that we did around
dealer markup, and one of the pieces of advice that people are normally given is you should
try to negotiate your interest rate. Well, we found that African American and Latino
consumers were more likely to report that they tried to negotiate their rate and they
still received higher rates than whites. Further, in financing, the only way to find out the
loan terms that you would qualify for is to actually go through the whole process, and,
in many cases, if you want to go through a dealer, you have to negotiate the car, negotiate
the trade-in, negotiate all these other things, and then you can get to the financing part,
and then you can find out what the price is. That’s great if you’ve got time, but if you’re
a single mom that’s working a couple of jobs, has got to take time off of work, asking them
to go to three or four dealerships and go through that process over and over again,
is asking an awful lot of those consumers. So I think while consumer education is important,
and certainly we want consumers to know what they’re getting into, I think it’s asking
a lot of them. The other thing our survey found was that
African American and Latino buyers were unlikely to report being told information that led
them to believe that the financing rate that they were offered was the best rate available,
or the best rate out in the marketplace. It’s very easy for someone who wants to sell somebody
into something that they probably shouldn’t get otherwise, to negate what they know, because,
ultimately, people are trusting. People trust the person that they’re talking to. They want
to believe that that person is telling them the truth, even though, in a lot of cases,
that may not be the case. And, finally, even if you ask them to find
information, a lot of that information isn’t available. Again, with dealer markup, for
instance, the only way for a consumer to protect himself, again, is to go through and get multiple
financing offers, but even then you’re asking them to compete to negotiate the markup, but
they don’t know how much the markup is. The rate is the rate. So what are you negotiating
against? And there’s no way for consumers to know,
on an objective level. I can’t go to my neighbor and compare the two financing offers we got
and know whether or not those two were actually the same. Did we pay the same markup at the
same dealer? I have no idea, because the financing is personal. They’re basing it on my risk.
There’s a risk portion and a compensation portion, and there’s no way for an average
consumer to be able to divide the two. Let me thank all of our panelists again, as
we transition to the audience testimony portion. Thank you. At this time, will the guest panelists please
rejoin the audience, and please join me in thanking our guest panelists. [Applause.] An important part of how the Bureau helps
consumer finance markets work across the U.S. is to hear directly from consumers�from
industry, from community advocates, and from many others. One of the ways that the Bureau
gathers public feedback is through public events such as these. We’ve had field hearings,
public town halls, and other public events in places like Philadelphia, Pennsylvania;
Minneapolis, Minnesota; Birmingham, Alabama; Sioux Falls, South Dakota; Durham, North Carolina;
Detroit; St. Louis, Missouri; Des Moines, Iowa; Itta Bena, Mississippi; and of course,
now Indianapolis, Indiana, among many others. At these events, we not only hear from experts
in the field, we also invite the public to participate and share their comments, as well.
Before I open the floor for comments, I want to remind folks that there are several ways
to communicate your observations, your concerns, or your complaints to the CFPB. You can file
a consumer complaint with the CFPB through our website at ConsumerFinance.gov. Our website
will walk you step by step through that process. If you don’t have a specific consumer complaint
but would like to share your story, we have a feature on our website called “Tell Us You
Story,” where you can tell us your story, good or bad, about your experience with consumer
financial products. Your story will help inform the work that we do to protect consumers and
to create a fair marketplace. We also have another feature, Ask CFPB, where
you can find answers to over 100 frequently asked questions about consumer financial issues,
as well as additional resources. I encourage you to visit ConsumerFinance.gov
to learn more about the resources and tools that the Bureau has developed to help consumers
make the best decisions for themselves and for their family. Now it’s time to hear from you. A number of
you signed up to share comments and observations about today’s discussion. The open mic portion
of the field hearing is also an important opportunity to the Consumer Bureau to learn
about what’s happening in consumer finance markets in your community. Each person who signed up to provide testimony
will have 2 minutes to do so, and what we hear from you is invaluable. We want to hear
from as many of you as possible. So I encourage you to please observe the 2-minute limit,
so that as many folks that signed up to share their observations have the opportunity to
do so. Our first audience participant is Andy Koblenz.
Someone will bring a mic to you, Mr. Koblenz. Well, thank you very much, and thank you for
the opportunity to speak. I’m Andy Koblenz with the National Automobile Dealers Association. And I just�as the Bureau goes forward, I’d
just encourage it on a couple things. One, you want to make sure that you have accurate
information about the marketplace. There was a comment earlier that when you pull credit
reports, when you go to a dealer and pull multiple credit reports, that adversely�because
you’re going to many finance sources, that adversely affects your credit score. I don’t
believe that’s accurate. I think that if those reports are done as part of one transaction,
it has the same effect. So I’d encourage you to make sure that the information that you
are getting is accurate. I also want to take a page out of the Director’s
comments to encourage the common-sense approach. That is the right, and let’s think about how
the markets work. And another comment that was made was that
the dealers have no incentive to write a good loan. I believe that was the statement, but
the dealers are operating in an intensely competitive marketplace, and they want to
keep a customer for life. People need cars throughout their lifetime. They need service.
The dealers have an ongoing business, and satisfying their customer and treating them
fairly is an enormously powerful incentive. The dealers have a tremendous incentive to
take care of their customers and treat them right, because that person will not only go
back to the dealer if they are treated poorly, they’re going to tell their neighbor and their
friends, and that dealer’s reputation will go totally down, so there� Thank you, Mr. Koblenz. Oh, I’m sorry. Thank you. Damon Lester. Thank you. I am Damon Lester. I am President
of the National Association of Minority Automobile Dealers. Just a couple things that I just heard today.
One, thank you for issuing out your reports, and we’ve been asking and asking for a while
for your documents, so that’s�I haven’t had a chance to take a look at all of them.
Man, you really put a lot out there. But we just want to thank you for that. And I guess one thing, we all need to have
a responsibility to make sure no consumer has an anxious or uncomfortable feeling when
they are purchasing a vehicle, okay? We have heard things about disclosures, and we are
probably overly disclosed with particularly in that F&I contract process. I think Chris
mentioned it was too long to buy a vehicle, the process, but if it was too short, we’d
be back here next week to have it�why the process is too short. So I think that we have
a responsibility to protect Mr. and Mrs. Customer, no matter what age, race, or ethnicity. For our standpoint, I think what we are doing
on our dealer’s side is try to protect the consumer, to make the process as fair and
transparent as possible, as it relates to the compliance program that we have adopted
and that we are urging all of our dealers to take heed to. We just need your help to help us help you
to make sure all the consumers are being protected. That’s my comment. Thank you, Mr. Lester. Robert Duff? Thank you. I am an Indiana consumer lawyer.
I practice here in Indiana. I represent consumers. That’s all I do, and I take a lot of calls
from consumers. I want to talk very briefly. The panel ended
with the discussion, what information do consumers need. There was mention about the Truth in
Lending Act disclosures, the ability to negotiate, shop around. Let me tell you one of the things that I have
seen kind of on the ground level that makes those things completely not work, and that
is the concept of yo-yo financing. The dealers call it “spot delivery,” but essentially,
what happens is a consumer comes in, negotiates the deal, does�completes the deal, thinks
that they have purchased a car, and they leave with the keys to that car. This car is theirs.
It is completed. What they don’t know is that that deal is
only completed for them. It’s not completed for the dealerships, and the dealership later
calls them in 3 days and says, “You know what, we’ve had trouble with the financing of your
vehicle, and we’re going to need you to come back in and sign some more paperwork.” And
typically, what that means is that the dealer�either the dealer planned it�sometimes they completely
plan those in my belief. Other times, they run into problems selling the retail installment
contract. They don’t have the employment paperwork that they needed or they’re not able to get
as much for that retail installment contract as they think that they should. But the problem
is that for them, it’s not a completed contract. They just call the consumer back in, and the
consumer at that point essentially only has the option to come back in, and now the consumers
have the vehicle for a while. So it’s like somebody that sends, you know, a kid at the
pet store home with the puppy dog, and now they’ve fallen in love with this car and they’ve
had it, and they showed it to their friends. And, you know, it would be really embarrassing
if they had to give this up. So what happens is that they end up in worse terms with the
subsequent contract with the dealership, and the original Truth in Lending Act disclosures
meant nothing, because now they’re in a subsequent deal with new terms. And I take calls from consumers about auto
fraud and, you know, auto issues, and at the peak, I bet I was getting one call a day of
a person who was in�either had experienced this or was in the process of going through
this. This is a problem that I think�and I know the CFPB does not regulate directly
dealers, but I also believe that if you regulate the lenders, the paper that they buy, you
can have a huge impact on that happening to consumers. Thank you, Mr. Duff. Linda Elkins. Hello. I’m Linda Elkins, Chair of the Economic
Dignity Team for the Indianapolis Congregation Action Network, the local PICO affiliate for
the Greater Indianapolis Metropolitan Area. One of the things that we are hearing�we
speak to people throughout the community, and we do hear continuously about these kind
of loans that have landed the families in economic hardship, and I realize that the
Bureau has limitations on your rate, but many times, it is not the large manufacturer or
dealerships that are causing the issues. It’s the small dealerships with used car lots that
the families are most often turning to and having�and these yo-yo deals, we hear about
that, or they’ve got the car, and it doesn’t run the next day. And they have the same kind
of issues, “Come back. We’ll take care of that.” That it’s not information that they
have at their hands, and they have no recourse. They see no way to take care of it themselves. Thank you, Ms. Elkins. Marty Murphy. Thank you. My name is Marty Murphy. I am the
Director of the Automobile Dealers Association of Indiana. I want to underscore the commitment that franchise
auto dealers here in Indiana and across the country have made to ensuring that their customers
have access to the tools necessary to be financially literate and understand the auto financing
marketplace. We’ve heard a lot today about just how competitive the auto industry is.
The other piece of the puzzle is to ensure that consumers know how to leverage all that
competition to their benefit, and dealers are helping to lead the way in completing
that mission. Our industry makes great efforts to enhance
consumer understanding of vehicle financing and to make available useful resources to
support this process. For example, the Coalition of Americans Well-informed on Automobile Retailing
Economics, or AWARE, which was jointly established by dealers and lenders, hosts a website at
AutoFinancing101.org that provides consumers with a wide range of information on specific
vehicle financing and leasing topics. Materials found there include a comprehensive
teaching kit entitled the “Auto Financing Road Map,” a guide for teaching auto financing
in your community; a brochure entitled “What You Need to Know About Auto Financing”; and
an auto financing wallet card, which you heard about earlier; a series of articles on topics
such as credit reports and negotiating vehicle financing. These and other resources can be
found at AWARE’s Auto Financing 101 Learning Suite, which also includes the highly regarded
brochure entitled “Understanding Vehicle Financing,” which was prepared by the AFSA Educational
Foundation and NADA in cooperation with the Federal Trade Commission, as well as the Federal
Reserve Board’s “Keys to Vehicle Leasing.” Thank you, Mr. Murphy. Barbara Bolling Williams. Actually, Attorney Duff already raised the
question that I was going to raise the issue with consumers purchasing or at least signing
all the documents in the dealership and then only to find out a few days later that they’ve
got to come back in, so thank you for that. Thank you, Ms. Bolling-Williams. Ron Smith? Thank you. My name is Ron Smith. I’m an attorney
in Indianapolis. I’ve been practicing law for 46 years now, and probably 46 years of
those have been representing dealers. My client base has been several hundred dealers over
the Midwest, Southeast, and Northeast. I have been representing the Automobile Dealers Association
of Indiana for a good number of years. A lot of what we do is compliance work. We conduct
seminars annually. We write brochures, we write bulletins, we write newsletters that
go into automobile finance compliance, as well as other compliance issues. And we’ve
been doing that annually for a number of years. It has been my experience that, of course,
the most new car dealers or franchise dealers are very, very compliant, compliance-oriented.
They go to great pains, great expense to get what information they can get about compliance. Also, I believe that the vast majority of
loans originated by franchise dealers go through without a hitch, without any consumer problems.
Thank you. Thank you, Mr. Smith. Andy Fraizer? Andy Fraizer with the Indiana Association
for Community Economic Development. We are a statewide association of 200 community-based
organizations that support low-income families with doing the work of resilient families
in vibrant communities. I want to commend the Bureau for having the
hearing. I very much appreciate it. I want to point you to some of the research
that the Center for Responsible Lending has done, specific to the Indiana context, which
says $456 million of impact for low-income Hoosier families and Hoosier families as a
result of dealer markups are having an adverse impact on the ability of families to get economically
ahead, if you will. We have heard a lot today about the importance of financial literacy
and consumer education. I’d also encourage that we think of that work
not only in our own silos of the work of the industry or the work of Federal Government
or of community-based organizations, but how we might work together collaboratively. IACED
represents a diversity of interests, and it was said earlier that credit is an opportunity.
It is both an opportunity for economic advancement, but it is also an opportunity for exploitation.
And so to the extent that as the industry has financiers, we can come alongside community-based
organizations who are on the front lines doing this work, working with low-income families,
working with Hoosiers. I think we could build a stronger financial literacy capacity. Many of our regulated depository institutions
do that already through the Community Reinvestment Act and the way that they think about how
they support communities. I would encourage, as we think about other types of finance,
we encourage that same type of collaboration that tries to bring industry and advancement
and profit motivation in line with community advancement, building resilient families and
vibrant communities. Thanks for the opportunity. Thank you, Fraizer. David Ogden. Thank you very much. Thanks for the opportunity
to address the leadership of the Bureau, the very distinguished leadership, and for the
chance to hear from so many others, including advocates for consumers for their interesting
and important information. I am here representing the National Automobile Dealers Association,
and I want to talk just for the 2 minutes I have about the fair lending issues that
the Bureau is looking at. And I agree entirely with Director Cordray
when you say that discrimination hurts us all, it’s wrong, it’s economically inefficient.
And as you note in your supervisory highlights that you’ve just released, fair lending concerns
about discretionary pricing is centered on the possibility of unexplained disparities
on a prohibited basis, where there is an absence of a legitimate nondiscriminatory documented
reason for it. That’s what you say, and that’s what the concern is. But it’s also important when you’re thinking
about what’s right and wrong and what’s efficient and inefficient to remember that flexibility
has virtues, and among them specifically is that the retail price of a loan can be lowered
to meet competition, and that kind of competitive pressure is important to consumers, and it’s
important to the economy. And flat rates don’t allow for that kind of
price competition, but what does allow for it is NADA’s Fair Lending Compliance Program,
which would impose what you call�this isn’t your characterization of the NADA program,
but it’s what you advocate for dealers�strong fair lending compliance management systems.
That’s what that program is, because it requires a documented, legitimate, nondiscriminatory
basis for any difference. That’s what that program is designed to do. It negates the
risk of discretionary pricing. It’s based on a DOJ consent decree, only it’s tougher,
the way it’s been designed. So I would just urge you. It’s really key
for federal regulators here to incentivize broad adoption of that program which touches
consumers directly at the retail point, which will ensure that there are legitimate nondiscriminatory
reasons for any differences and allow price competition to take place. Thank you. Thank you, Mr. Ogden. Kim Boyd? Again, to repeat everyone’s appreciation that’s
been expressed here today, to Director Cordray and all of the panel who came out today, it’s
just been valuable information and good dialogue all the way around the board. To try to keep to my 2 minutes, I definitely
want to point out, as well as the other gentleman that just made his commentary before me�I
think it was Bill on the panel that made a statement about credit is an opportunity.
It definitely is an opportunity, but the question becomes, Is the opportunity to be predatory
to consumers, or is the opportunity to advance a person’s qualify of life for their family? In cases like Wells Fargo, Countrywide, definitely
there were some predatory practices there. So the question becomes where is that credit
opportunity directed. The other thing I heard on the panel is shop
and have a grocery list, but for the consumers that are typically shopping for these automobiles,
can’t even understand the terminology. There’s a lot of consumers that don’t understand subprime.
I remember when I bought my first car, there was no such thing as gap insurance. Gap insurance
has come about. So, again, when you talk about the automobile industry�and I make the statements
that they have these services that are available for consumers. My question is, number one,
some of these consumers don’t even have the Internet, which is why they’re getting subprime
rates. Number two, what are you doing to engage with the community that is outside of the
scope of their respective interest groups or lobby groups and actually getting to that
consumer that needs the most help and is going to hit the hardest by these subprime rates?
Because they go to a car shop, a dealership, and they don’t understand the terminology.
It’s quite over their head. So then let’s see some investment by those
automobile dealers within the community to go grassroots, actually touch those consumers,
so that everyone has a free opportunity, whether accessible to the Internet or not. Thank you, Ms. Boyd, and I encourage you to
share your contact information with Chris Vaeth, so that he can talk to you about how
we can do a better job of reaching the communities that you described. Judith Fox. Hi. I am Judy Fox. I’m a professor at Notre
Dame Law School, and I run the Economic Justice Clinic, which is a free clinic for consumers
in Indiana. I just briefly want to echo what Mr. Duff said. We see yo-yo loans, but that’s
not really what I wanted to talk about. I have just started a study of the credit
practices of low-income Hoosier residents and having pulled and looked at well over
100 credit reports this summer and talked to consumers, I can tell you, while I don’t
have my study done, that consumers do not understand loan financing, and I hate�I’m
not going to say that I understand the FICO credit scoring completely, but I will say
that all of the credit bureaus, at least report on their credit bureaus, that all of those
inquiries when you went into a car loan count against your credit, so perhaps the credit
bureaus are incorrect, but they do at least come out on the credit report as count against
your credit. The last�I wasn’t going to speak to day,
but the last question that was asked of the panel, I just couldn’t resist. I became a
lawyer because before I was a lawyer, I bought loan paper from dealers, and we used to have
a game in our office when we looked at the interest rate that came in to guess the race
and sex of the buyer. And we were never wrong. If it was over 20 percent, it was an African
American woman. If it was 7 percent, it was a white male. That’s why I became a lawyer,
and if you want to know what consumers need to know, when they go into a dealer, they
think they are going in, just as they used to think they are going into a loan broker,
to somebody who is doing the best to get them the cheapest rate. They need to know who their
loan was shopped to, what rates they were offered, what rates you’re giving. Dealers
need to make money, and I understand that, but the consumer needs to know that I could
have gotten a 7 percent loan from First Source Bank, but you’re going to give it to me for
12 percent. And I’m going to give you the 12 percent loan, and because of that, I may
be reducing the price of the car. That might be fine, but that’s what the consumer needs
to know. They need to know where those deals were shopped and what rates were offered. Thank you, Ms. Fox. And thank you to everyone
who provided thoughtful comments today. Thank you to the audience, to the panelists, and
to all those who are watching via live stream at ConsumerFinance.gov. Thank you to IUPUI
for hosting the CFPB. This concludes the Consumer Finance Bureau’s field hearing in Indianapolis,
Indiana. Have a great afternoon. [Applause.]

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