Editor’s Note: There is a question as to whether the CFPB is living up to the transparency requirements of the Obama Administration with respect to disseminating for public comment it underlying methodlogy to use the proxy methods described below.
WASHINGTON — The Consumer Financial Protection Bureau on Monday gave more clues about the methods underpinning its claims that auto dealers engaged in bias in setting interest rates for car loans. But the National Automobile Dealers Association says the agency didn’t provide the answers that its members were looking for.
In a letter Monday to U.S. Sens. Jeanne Shaheen and Rob Portman, CFPB Director Richard Cordray said the agency’s findings relied solely on patterns detected through public records, such as a database of names from the Social Security Administration and demographic data from the U.S. Census Bureau.
“We have chosen to use proxy methods that rely solely on public data so that lenders can replicate our methods without the need to re-create or purchase proprietary databases,” the agency’s letter says.
The letter came in response to a letter that Shaheen and Portman wrote last week at the NADA’s urging. It followed similar letters that Rep. Terri Sewell and Rep. Spencer Bachus sent this spring seeking greater disclosure about how the agency reached its findings.
The CFPB issued a bulletin in March warning it had detected discrimination against protected groups such as women and racial minorities and urging lenders to change how they compensate dealers for arranging car loans.
That action sent lenders scrambling and sparked a political feud between the 3-year-old CFPB and dealers. Many dealers see the agency’s preferred path — a flat fee for every loan a dealer processes rather than a cut of the interest rate, which varies based on negotiations in the F&I office — as less flexible and less lucrative.
The agency said in its letter that for its analysis of auto-loan applications, it predicted the gender of applicants by comparing their first names to a database of first names from the U.S. Social Security Administration, which gives the probability that the person with that name is male or female.
There are other ways of trying to predict national origin and race, but the CFPB says it uses an “integrated proxy” developed by health economists that combines last names and geography to predict the race and national origin of individuals.
The agency’s reply, although swift, did not satisfy the NADA, which wants the CFPB to release the actual data that show bias in auto lending and to explain how a new way of paying dealers would be good for consumers.
The latest letter does not answer those questions, but it “proves something,” Bailey Wood, an NADA spokesman, said today. “The CFPB is drunk with power, and they have absolutely no concern or accountability to Congress or the American people.”
You can reach Gabe Nelson at gnelson@crain.com.