Starting as early as July, the CFPB is poised to issue consent orders against three major lenders in automotive financing: American Honda Finance Corp.; Toyota Motor Credit Corp; and Nissan Motor Acceptance Corp. These consent orders will require payment to affected consumers and will represent a major victory in the CFPB’s efforts to reduce pricing discretion in the industry (American Banker, 6/30/2015):

If approved and signed, the orders would require all three firms to pay renumeration to affected consumers, but could forgo civil money penalties in return for changing how much flexibility they give dealer partners to mark up the cost of an auto loan. Though the CFPB cannot directly supervise auto dealers, it has been scrutinizing indirect auto lenders’ policy of allowing price discretion to partners, arguing it often results in minorities paying more.

Under the proposed deals, Honda, Toyota and Nissan’s financing arms would agree to cut the price discretion that they offer dealers by roughly half of their current rates…

Though the settlement amounts are still pending approval, Honda is facing $24 million in consumer redress on allegations that its dealers charged higher rates to more than 164,600 minorities because of its dealer price discretion policy. Under the deal, it would not pay an additional civil money penalty in return for limiting dealer discretion going forward to 125 basis points on contracts that are 60 months or less, and 100 basis points for contracts longer than 60 months, among other stipulations. That is roughly half the 200 to 225 basis point range it currently allows.

The exact redress amounts for Toyota and Nissan were not yet set by mid-June, according to the obtained documents. But based on initial recommendations made by CFPB staff in November, Toyota will have to pay between $14 million to $102 million to consumers to settle allegations it charged higher rates to 127,285 minorities. Nissan is facing $8 million to $75 million in redress for an affected 74,405 minority borrowers.


July 3rd, 2015|