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House Financial Services Committee Chairman to CFPB on Indirect Auto Investigations: Slow Down. Pull Over. And Show Us Some ID.

Posted in CFPB Enforcement, Fair Lending, Vehicle Loans

Since last March, when the CFPB issued Bulletin No. 2013-02, its highly controversial release warning banks and finance companies that purchase motor vehicle installment sales contracts that, under existing law, any dealer finance charge participation may violate the Equal Credit Opportunity Act and Regulation B, numerous members of Congress have been unsuccessful in seeking clear and precise information from the CFPB as to how it determines that practices that are neutral on their face are nonetheless discriminatory

Obviously tiring of month after month of what he termed “a pattern of obfuscation” on the part of the CFPB, on Friday, House Financial Services Committee Chairman Jeb Hensarling (R-TX) sent a letter to CFPB Director Richard Cordray, with a copy to Mark Bialek, the Inspector General for the FRB and CFPB, threatening a Congressional subpoena unless, by March 13, the CFPB turns over detailed information regarding its methodology in general and the analysis it employed in connection with its first auto finance fair lending enforcement action in particular. 

More specifically, the letter seeks (1) the numerical thresholds at which the CFPB determines that there is a disparate impact for different groups of consumers, (2) the proxies it uses to determine a consumer’s background, (3) the factors it holds constant to ensure that any pricing differentials are attributable to a consumer’s background, (4) the controls it employs to confirm that those consumers being compared are similarly situated, (5) the potential explanatory variables put forth by the respondents in the enforcement action, (6) the reasons for asserting that the respondents failed to provide adequate evidence that those variables appropriately reflected legitimate business needs, and (7) the regression analysis model used in the enforcement action. 

The issuance of a subpoena would require a majority vote on the part of the Committee, and is thus by no means a foregone conclusion, but should a subpoena be issued, the continued failure of the CFPB to respond could have significant and possibly even dramatic consequences, as Congress has three very different options to pursue in these circumstances. First, Congress may sue in federal court seeking a civil order mandating compliance. Second, Congress may also certify a contempt citation seeking criminal prosecution by the Department of Justice. And third, Congress may exercise its inherent power, upheld by the Supreme Court, but not used since 1935, to detain, imprison, and try anyone who fails to produce requested information.