WASHINGTON (2/22/13)--The Consumer Financial Protection Bureau is mulling legal action against at least four banks for their auto lending practices, Bloomberg reported on Thursday.
The CFPB last week reportedly gave the unnamed banks 15 days to explain the lending practices in question. Sources told Bloomberg the auto loan policies and practices identified by the CFPB may violate the Equal Credit Opportunity Act (ECOA). ECOA bans creditors from discriminating against credit applicants based on their race, color, religion, national origin, sex, marital status, and other select factors.
The Credit Union National Association in recent years has urged the Federal Trade Commission to apply consistent consumer protection rules for motor vehicle dealers offering motor vehicle financing. CUNA has noted that auto dealers, who are often the single point of contact for consumers during an auto purchase, are not always concerned with consumer protection. CUNA emphasized that auto dealers provide a significant portion of all motor vehicle loans and should not have a special exemption to inflate rates, charge hidden fees, or engage in other harmful practices. Providing consistent consumer protection rules would ensure a level playing field for all financial entities that provide motor vehicle lending or lease arrangements, CUNA has said.
Credit unions provide both direct and indirect loans to prospective motor vehicle purchasers, and 95% of credit unions nationwide are involved in the auto loan business. Consumers that use credit union loans instead of bank-originated loans to purchase a new vehicle worth $30,000 would save an average of $1,300 over the span of a five year loan, according to CUNA estimates.