The Biden Administration’s approach to fair lending

By Michael G. Charapp
Charapp & Weiss LLP


During the Obama administration, regulators targeted dealer financing practices threatening an important element of dealer income.  The Consumer Financial Protection Bureau attacked dealer participation, claiming that it led to consumers in protected classes paying more for credit. In the latter years of the Obama administration, the CFPB began challenges to pricing of voluntary protection products, claiming that consumers in protected classes were paying more for VPPs than consumers in non-protected classes.

During the Trump administration, these initiatives were not a priority. Even dealers who adopted fair lending policies became lax in their use of them. Times have changed.

The Biden administration is Obama term 3 for fair lending. The CFPB and the FTC will both soon be led by individuals critical that these agencies have failed to use their authority to revolutionize motor vehicle lending. This should not be a surprise. We have pointed out that social justice advocates are likely to target dealerships for activism, and the area most likely to be attacked will be perceived differences in the cost of credit for consumers in protected classes and the perceived higher cost of voluntary protection products for consumers in protected classes.

Finance sources are getting this message. During the latter days of the Obama administration, several finance sources audited dealer portfolios to determine whether consumers in protected classes are disadvantaged by higher costs of credit. They provided analyses to dealers that analyzed the difference in the number of basis points over buy rate of those in protected classes versus those not in protected classes. It was clear that these finance source CYA activities were done to shift the blame to dealers if the finance sources were criticized for differences.

Finance sources are once again starting to provide these analyses to dealers. And it will not be long before they start analyzing the prices for voluntary protection products paid by consumers in protected classes versus prices for those not in protected classes to support their theory that protected consumers are disadvantaged by higher VPP prices.

So what should your dealership do?

  • If you adopted a Fair Lending policy that standardized the spread over buy rate, with downward deviation only for non-discriminatory reasons, and you became lax about enforcing it, or you never adopted such a policy, now is the time to put the policy in place and train personnel in using it. We recommend the NADA Fair Lending Policy.
  • Now is the time for you to adopt a policy on voluntary protection products that standardizes the markup over product cost, with downward deviations only for non-discriminatory reasons and train personnel in using it. We recommend the NADA/NAMAD/AIADA Model Dealership Policy on Voluntary Protection Products.
  • Put a senior manager in control of compliance with these programs.
  • Review deals carefully to ensure that F&I personnel are complying with these programs.
  • When you determine from oversight that the programs are not being properly utilized, retrain the offending personnel.
  • Be prepared to take action against employees who refuse to comply with dealership policies, including termination if necessary.

Figures showing that your dealership may charge more to certain classes of consumers may be statistical anomalies. They may also result from the need to make educated guesses about the protected classes in which certain consumers may belong based on surname or address. Unfortunately, you will not be in a position to show that differences perceived by your finance source, or worse by regulators or by litigants, result from statistical anomalies unless you have in place solid programs for fair lending and sale of voluntary protection products.