On June 29, NYDFS announced that two New York-charted banks engaging in indirect auto lending will pay civil money penalties for violating New York’s fair lending law for engaging in practices that resulted in members of protected classes paying higher interest rates that were not based on creditworthiness. In particular, NYDFS asserts that the practice of allowing “dealer markup” in setting retail interest rates resulted in statistically significant differences in pricing, disadvantaging Hispanic and African-American consumers, with differences ranging from 20 to 59 basis points.
In one of the consent orders, the first bank – which had exited the indirect auto finance business in 2017 – agreed to pay a $275,000 civil money penalty and make a $50,000 contribution to local community development organizations. But for the other bank that was still operating, the second consent order required the bank to pay a $350,000 civil money penalty, and among other things, adopt a flat-fee pricing model relating to its indirect auto lending.
Putting It Into Practice: After announcing in 2018 that it intended to pick up where the CFPB left off with fair lending enforcement in the indirect auto finance market, NYDFS continues to significantly impact auto finance companies subject to the agency’s jurisdiction. And while indirect auto lenders have enjoyed significant relief from the CFPB’s vigorous fair lending enforcement activity from 2013-2016, auto lenders have not been strangers to recent CFPB enforcement actions more generally (see here, here, and here). Auto lenders continuing to wage regulatory battles on various fronts, including in New York, may find it helpful to reference the NYDFS’ 2018 fair lending compliance guidance document that outlines six key compliance action items to be taken by indirect auto lenders in evaluating and monitoring dealerships from which they buy automobile retail installment contracts, including taking prompt corrective action in connection with instances of improper dealer mark-up.