The American Bar Association’s (ABA) Civil Rights and Social Justice Section, State and Local Government Law Section, and Commission on Homelessness and Poverty has proposed a resolution affecting automobile dealers that will be considered by the ABA House of Delegates in early August. The resolution is directed squarely at various issues related to vehicle sales and financing and is part of the ABA’s advocacy and policy-making efforts. The ABA indicates that the primary intent of the resolution is to urge Congress to amend the Equal Credit Opportunity Act (ECOA) to require documentation and collection of an applicant’s race, gender and national origin for non-mortgage transactions, including vehicle-secured transactions, and to urge Congress and legislative bodies to adopt laws and policies requiring an enhanced nondiscrimination compliance system for vehicle loans. Currently, under the ECOA, lenders are only required to collect so-called “government monitoring information” (race, ethnicity, sex, marital status and age) in connection with loans secured by a principal dwelling (Regulation B, 12 CFR § 1002.13).
The proposed ABA Resolution calls for:
- Federal, state, local, territorial and tribal governments to adopt and enforce fair lending laws and other laws targeting unfair or deceptive acts or practices to address discrimination in vehicle sales and financing;
- Amendment of the ECOA to require collection and documentation of applicant race, gender, and national origin for vehicle credit transactions through applicant self-identification;
- Adoption of legislation requiring timely notice and disclosure of the pricing of add-on or voluntary protection products by dealers on each vehicle (such as via pricing sheet or website) before a consumer negotiates a vehicle purchase;
- Adoption of laws and policies that reduce dealer discretion by limiting dealer markup or reserve, or eliminating dealer discretion to mark up interest rates, by using a different method of dealer compensation, such as a flat fee for each transaction; and,
- Bar associations to offer educational programming to help lawyers and consumers understand the purchase and financing of vehicles and consumers’ legal rights in such transactions.
The ABA cites prior reports and investigations by the National Fair Housing Alliance, among others, relating the history of discrimination in auto lending to support its reasoning for this resolution. With regard to the proposal supporting amendment of the ECOA, the ABA cites the National Consumer Law Center’s position that prohibiting non-mortgage lenders from collecting certain applicant characteristic information makes it very difficult to determine if discrimination occurs. The background report in support of the resolution also discusses the support of certain state attorneys general for collection of such data in connection with disparate impact liability and their enforcement of anti-discrimination laws.
Another concern prompting this ABA proposed resolution is related to dealer reserves or markups. The ABA references the concerns of a group of U.S. senators that minority car purchasers are harmed by discriminatory practices through dealer markups as one reason for this proposed resolution. The ABA also indicates that “[T]he promotion of an enhanced nondiscrimination compliance system, as voluntarily promoted in the Fair Credit Compliance Policy & Program through the National Association of Minority Automobile Dealers (NAMAD), the National Automobile Dealers Association (NADA), and the American International Automobile Dealers, can be an effective way to ensure a rigorous review of exceptions to a flat-percentage fee in order to provide robust processes for fair pricing of dealer markups to all consumers in a nondiscriminatory manner” (ABA Proposed Resolution 115G, p. 11).
With respect to add-on or voluntary protection products, the ABA report provides that the “insidious effects of the wide disparities in car loan pricing are evident when compared to in nature.” The ABA points out that, by contrast, an insurance agent’s commission is not based on charging differing consumers differing prices for the same product, as the ABA believes is the case for dealers selling add-on products.
The ABA concludes that the resolution will affirm the ABA’s commitment to actively opposing discrimination, as well as strengthen consumer protections and promote economic justice.
Auto finance companies and dealers should carefully consider this proposed resolution in connection with their own advocacy efforts, as well as considering how, if this resolution is adopted by the ABA, it could eventually impact the operations and practices of auto finance companies and dealers.