The lending arm of Honda Motor Co., America Honda Finance Corp., has just revealed in a recent public filing that the U.S. Department of Justice and the Consumer Financial Protection Bureau have authorized an enforcement action against the company for violations of law arising out of its indirect lending practices. Honda stated that the CFPB and DOJ “have indicated that they are seeking monetary relief and implementation of changes to our discretionary pricing practices and policies.” Honda further advised that it has cooperated with the agencies’ investigation and hopes to achieve “a mutually satisfactory resolution.”
Honda’s filing also pointed out that the actions of the CFPB and the DOJ are part of a broader federal inquiry into whether auto lenders charge higher interest rates to minorities. In fact, Honda is the second significant auto lender to announce this week an ongoing investigation into its indirect lending practices by the CFPB and DOJ. A third major lender reached a settlement with the CFPB in December 2013.
The CFPB and DOJ enforcement actions are the latest in a series of attacks on the auto industry’s indirect lending practices. These efforts were precipitated by a bulletin published by the CFPB in March 2013 warning that the industry’s “discretionary” loan pricing ran afoul of the Equal Credit Opportunity Act. The CFPB’s view is based on the legal proposition that the existence of statistical disparities alone – without any evidence of discriminatory intent – can establish a violation of ECOA. Then, beginning in late 2013 and continuing through this year, the CFPB has undertaken several investigations of top indirect auto lenders, some of which resulted in enforcement actions and/or substantial settlements, as we reported here.
Despite Congressional scrutiny into the CFPB’s actions from groups of House Democrats and Republicans, and the release of a major, industry-sponsored study that concluded that the CFPB’s methodology for demonstrating so-called disparate impact was unreliable, the CFPB does not appear that it will relent in its continuing efforts to reform basic business practices in the indirect auto finance industry.