2 New Study Discredits CFPB’s Fair Credit Testing by Forrest McConnell, Chairman, NADA
A new study of more than 8.2 million auto loan contracts by the consulting firm Charles River Associates con- cluded that the proxy method used by the Consumer Financial Protection Bureau to measure for unintended dis- crimination in an auto lender’s portfo- lio is “conceptually flawed” and “inherently unreliable.” The peer-review study, Fair Lending: Implications for the Indirect Auto Finance Market , commissioned by the American Financial Services Association and released on November 19, found significant bias and high error rates. The CFPB, which issued its guidance in March 2013, has used a proxy method to support claims of unintend- ed discrimination against—and extract settlements from—auto lenders and to pressure auto lenders to change the way they compensate dealers for orig- inating finance contracts. The study found that the CFPB’s methodology frequently misidentified the background of consumers and overestimated differences in dealer reserve paid by different groups of Starting on December 31, 2014, the minimum wage increases to $8.75/hour. This is the second of three increases passed which are to be implemented over a three-year peri- od. On December 31, 2015 the mini- mum wage will rise to $9.00/hour. Overtime Rate Employees who receive overtime at a rate of one and a half times the mini- mum wage for hours worked over 40 will also need wage adjustments. The new rate will be $13.13/hour. 3
consumers. For example, the CFPB’s method overestimates African- American borrowers by 41 percent. The study also concluded that the CFPB’s examination of differences in dealer reserve at the portfolio level is meaningless because it fails to account for legitimate reasons for pricing differences at the retail level. Dealers have also offered up an optional program that addresses fair credit risks. Based on a fair credit risk mitigation model developed by the U.S. Department of Justice in 2007 to resolve fair credit investigations of two dealers, NADA released its com- prehensive Fair Credit Compliance Policy & Program in January 2014. count interest rates and ensures the discounts are for legitimate business reasons, like meeting a competing finance offer. Rather than require cost- ly and inaccurate statistical testing, the program controls for risk on the front end of the transaction. Many dealers, including large dealer groups, have implemented the program. When implemented, NADA’s program documents instances when dealers dis- Exempt Employees There are also increased new salary minimums required for employees to qualify for white-collar exemptions from overtime (executive or adminis- trative exemption). Beginning December 31, 2014, dealers must pay exempt executive and administrative employees a minimum salary of $656.26/week and starting on December 31, 2015 this rate increases to $675.00/week. Examples of employees who may qualify for the administrative or executive exemp-
Meanwhile, the CFPB has repeatedly failed to fully respond to questions from Congressional Democrats and Republicans urging disclosure of its testing methodology, which is lacking in the guidance. Based on this and Republicans and 56 Democrats – have cosponsored legislation in the House to rescind the CFPB’s 2013 guidance. The bill, H.R. 5403, co-sponsored by Reps. Marlin Stutzman (R-Ind.) and Ed Perlmutter (D-Colo.), also requires transparency and public input prior to the issuance of future CFPB guidance on auto lending. For more informa- tion, visit www.nada.org/cfpb . The federal government should consider promoting broad industry adoption of NADA’s fair credit pro- gram, which addresses fair credit risks at the retail level while preserving competition in the marketplace. GNYADA thanks Forrest McConnell, Chairman, NADA, for contributions to this article. other flaws, 146 members of Congress – which includes 90
NYS MinimumWage Increases to $8.75
tion include: General Manager, Controller, Sales Manager, or Service Manager. These new rates must be reflected in the 2015 Payday/Pay Rate notices required under the Wage Theft Prevention Act (see “Annual Payday Forms Due by February1, 2015”). GNYADA will be sending updates to your 14-in-one Labor Law Compliance Poster for Metro New York Area New Car Dealers as soon as they become available.
Greater New York Automobile Dealers Association • www.gnyada.com