April XX, 2016

The Honorable Richard Cordray

Director
Consumer Financial Protection Bureau
1275 First Street, NE
Washington, DC 20002
Dear Director Cordray:
We write to urge the Consumer Financial Protection Bureau (CFPB), in the face of opposition, to
continue its work to combat discriminatory and unfair lending practices, particularly in auto
finance. Discrimination has no place in our financial system. We believe it is appropriate and
necessary for the Bureau to continue this work, and urge the Bureau to do so.
We know that there are many good actors in the auto finance market. However, since December
2013, the CFPB has brought enforcement actions against several large auto finance companies
that have resulted in penalties of more than $145 million. These cases have found that loan
pricing policies have often resulted in minority borrowers including African-American,
Hispanic, and Asian/Pacific Islander borrowers paying higher dealer markups than white
borrowers, resulting in thousands of minorities paying $100 to $250 more per loan than their
white counterparts.
When a borrower finances a car through a dealer, the dealer has discretion to increase the
borrowers interest rate above the buy rate, set by the auto finance company based on credit
scores and other risk criteria, which is known as a dealer markup. The CFPB found that dealers
were marking up consumers interest rates as much as 2.5%. This practice of discretionary
markup has a long history of discrimination. A series of class action lawsuits that settled in the
mid-2000s found widespread and significant discriminatory effects tied to dealer interest rate
markup. As part of those settlements, lenders agreed to cap dealer markups, but the settlements
expired by 2012. There is strong evidence indicating that, as the settlements expired,
discriminatory practices returned.
We are aware that the CFPB has been criticized for its 2013 guidance on indirect auto lending
and compliance with the Equal Credit Opportunity Act (ECOA). ECOA makes it unlawful for
any creditor to discriminate against any applicant on the basis of race, color, religion, national
origin, sex or marital status, age, or receipt of public assistance. Since the law was passed in
1974, ECOA has been instrumental in rooting out discrimination in many credit markets,
including credit cards, housing, and auto loans. Congress gave the CFPB the authority and duty

to enforce ECOA, and its enforcement of these standards in the auto lending market is
appropriate and consistent with long-standing precedents.
The CFPB has also been criticized for reviewing indirect auto lending using a disparate impact
analysis. However, the use of disparate impact is widely recognized as an appropriate tool for
rooting out discrimination and has been used for decades by federal agencies and upheld by
courts. For example, a 1994 interagency policy statement on discriminatory lending laid out
regulatory expectations for how lenders should ensure that their practices do not result in
disparate impact on protected classes in compliance with the Fair Housing Act and ECOA. As
recently as last year, the Supreme Court affirmed the use of disparate impact to identify
discrimination in the housing market. The use of disparate impact analysis to uncover
discriminatory lending practices has helped to change lending practices and ensure that
minorities and members of other protected classes are not treated unfairly in credit transactions.
The vast majority of American families own at least one car, and for many, having a car is their
only way to get to work. According to the Federal Reserve Bank of New York, outstanding auto
loans now total more than one trillion dollars. Auto loans are the third-largest consumer debt
market, behind only mortgages and student loans. As the purchase of a car is likely one of the
largest financial decisions many families will make, it is crucial that we ensure that everyone in
the market is treated fairly. Rather than stand in the way of the CFPBs work to eliminate
discrimination in this and other lending markets, Congress should support these efforts and work
to find solutions to improve the auto financing market.
We urge you to continue your work to protect consumers from discriminatory and other unfair
practices.
Sincerely,
________________________
Cory A. Booker

________________________
Sherrod Brown