With Ally Financial having to refund money to victims of alleged bias in auto loans, are the dealerships that originated those loans now exposed to liability?
Maybe, according to some consumer advocates.
Automotive News reported that under the “disparate impact” theory pursued by the Consumer Financial Protection Bureau (CPFB), the central issue is dealer discretion in setting the dealer reserve — the share of the customer’s interest rate that dealerships earn for negotiating the finance contract. By that theory, it’s the dealership that’s discriminating, whether accidentally or on purpose; the lender is liable only for the pricing policies that allow it to happen.
Under the settlement announced by the CFPB this week, Ally Financial agreed to pay $80 million in consumer restitution and another $18 million in civil penalties for alleged discrimination against minority buyers. Lender policies resulted in a disparate impact against legally protected classes of borrowers, the CFPB said.
Some consumers who get a refund may want to sue the dealership that allegedly discriminated against them, said attorney Dan Blinn of the Consumer Law Group in Rocky Hill, Conn. He has represented consumers in past lawsuits against dealerships.
“It actually is the dealership conduct that results in the disparate impact. But it is the lender policy that leads to that discrimination,” Blinn said in a phone interview. “Some consumers may want to sue a dealership, if they understand that it was the dealership’s policies that led to the discrimination.”
John Van Alst, an attorney for the Boston-based National Consumer Law Center, agreed that some consumers may react that way, but he said mandatory binding arbitration clauses in most finance contracts would make it difficult for an individual to sue.
State authorities and the U.S. Department of Justice theoretically could file enforcement actions against dealerships for alleged discrimination, he said.
Blinn said even if dealers are theoretically at fault, lenders have enough power in their hands to reduce the risk of bias.
“The finance companies do have responsibilities here,” Blinn said. “The only way to address it and make sure all consumers are treated fairly without regard to their race or ethnicity is to make sure the finance companies have procedures in place to prevent it from happening.”
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