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#27407 - 08/08/02 08:21 PM Fair lending - direct vs indirect pricing
Bartman Offline
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Bartman
Joined: Oct 2000
Posts: 1,191
Springfield
Consumer lending would like to establish different rates for indirect (via dealers) auto financing compared to direct (via our branches) auto financing. Today, everyone reads from the same rate sheet - however, we're working with a new consumer loan manager and we're moving away from indirect financing.

If we document our cost-benefit analysis to show the difference in expense from one portfolio versus the other, and establish (and adhere to) separate lending policies and pricing for each product, are we covering our fair lending bases adequately? Or should we be looking at something else?

Ultimately, we want the customer to get a better deal by coming into the bank, instead of accepting the convenience of dealership direction / one-stop shopping.

I'm getting the "other banks are doing this" argument - just looking for some reassurance.
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Opinions are Bartman's, not those of my employer. "A noble spirit embiggens the smallest man."

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#27408 - 08/08/02 08:35 PM Re: Fair lending - direct vs indirect pricing
Princess Romeo Offline

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Princess Romeo
Joined: Jun 2001
Posts: 8,272
Where the heart is
From my perspective, I don't see an issue in having a pricing difference between "direct" vs. "indirect." You should always be able to give preference based on your most efficient or desired delivery method. Some shops price dealer paper lower because they don't want the lobby traffic. Some shops prefer to give preference to their customers. IMHO It wouldn't be that much different from giving preferred for someone having an account with your bank.

The only concern would be if you had different pricing from one dealer to the next - especially if the higher pricing was for a dealer in a minority area.
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#27409 - 08/09/02 01:41 PM Re: Fair lending - direct vs indirect pricing
rlcarey Online
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rlcarey
Joined: Jul 2001
Posts: 83,164
Galveston, TX
I agree with Bonnie. A pricing difference between direct and indirect paper is a common practice. The most dangerous scenerio on the indirect side as far as I am concerned is when a bank establishes a dealer "buy rate" and then pays the dealer the price differential without regard to the interest rate that the dealer charged the customer. For example, the dealer buy rate is 5% and the dealer presents paper at any where from 6.5% to 10% and the bank compensates the dealer for the difference. Normally you will find the rate differentials have nothing to do with credit worthiness, but car loans to women and minorities. This was a huge soapbox for me in the early 90's and after some research and analysis, I convinced the bank that they needed to change their dealer compensation methods or risk having loans on the books that exhibited pricing discrimination. Thank god this was before the fair lending examinations and these loans cleared off the books before that process started.
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#27410 - 08/09/02 09:57 PM Re: Fair lending - direct vs indirect pricing
Lucy Griffin Offline

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Lucy Griffin
Joined: Nov 2000
Posts: 1,544
I'll add my support to the differences. Direct and indirect are two different products. It is good to think through the support for different pricing, but wanting customers to get the best deal by coming directly to the bank seems to be a sound business reason for differences in pricing.

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#27411 - 08/14/02 08:02 PM Re: Fair lending - direct vs indirect pricing
Bartman Offline
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Bartman
Joined: Oct 2000
Posts: 1,191
Springfield
Thanks to all for your comments - I feel better now.
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Opinions are Bartman's, not those of my employer. "A noble spirit embiggens the smallest man."

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