With regard to indirect auto lending pricing and the rate the bank approves a loan for (not dealer markup), has anyone seen any commentary our publication regarding what would be acceptable pricing disparities?

For those of us who have seen the recent DOJ cases, there's been some clear lines drawn for the dealer markup portion. I'm trying to create a policy for underwriting analysis as well and just curious what others out there are doing, or thinking of doing in terms of a Fair Lending Review of their indirect auto.

Thank you!

acceptable pricing disparities?

Same as with direct lending. Zero.

If you allow pricing disparities, any differences would have to not only be completely unrelated to the bases of discrimination, disparate treatment and the effects test but I would believe you would jump through hoops every time a loan is made justifying that. Then you have to ensure your examiners understand and agree with you. I know there are differences allowed for in the industry, but the CFPB has all but promised that equality based on qualifications is the way to go. The "norm" of the past will end, IMHO. Personally, I would not have a policy that accepted it now knowing whats required to justify your position. It may be that your volume says it is profitable, but I'd urge caution.

Any differences (which might be a better term than disparities for what you are attempting to do) must be based on firm criteria (credit, balances, collateral, etc.), and not lender opinions, practices, etc.

Ford Motor Credit and Nissan Motor Credit were both charged with disparate treatment because of differences in auto pricing. Nara Bank in CA was charged for charging white borrowers more. CFPB has a special task force looking at indirect lending.

Take those 4 then re-read the above posts. If it is not based on risk or relationship, it might be hard to explain why there is a difference. In addition, if there are pricing breaks because of credit score, LTV, etc. they should not only be in policy, but universally applied, and exceptions (if any) recorded, analyzed and reported.

Many auto lenders use collateral, term, LTV, etc to drive pricing and avoid fair lending scrutiny. But the reasons have to be justifiable and thoroughly documented. I totally agree with Rocky P regarding exceptions needing to be recorded, analyzed, and reported.

Using factors related to the borrower or his creditworthiness to determine pricing is hard to justify and probably won't end well.