Obama’s Race Cops Cast Wider Net, Student Lenders

Mar 7, 2013 by

The Obama administration is no longer investigating just mortgage lenders for allegedly discriminating against blacks and Latinos. It’s now also targeting banks making auto and student loans.

Opening a new front in the war on banks, the Consumer Financial Protection Bureau is investigating and preparing to sue Ally Financial Inc. and at least three other major auto lenders for allegedly overcharging minority borrowers.

“A persistent problem is the evil of discrimination,” proclaimed Richard Cordray, the bureau’s recess-appointed director.

Though financial reforms don’t authorize the new credit watchdog to probe auto dealers, “auto lending is within our jurisdiction,” Cordray asserted.

“We are examining institutions around auto lending just as we are looking at them on mortgage, credit cards, student loans.”

The bureau is pursuing racism charges based on “disparate impact,” a dubious legal theory that uses statistical models to prove bias. “It makes no practical difference whether a lender consciously intended to discriminate,” Cordray warned.

As with home loans, blacks and Latinos historically have been found to pay more for car loans than whites.

But the administration’s “discriminatory effects” analysis excludes key credit factors explaining racial gaps.

It also ignores stats showing Asian minorities tend to get better deals than whites.

CFPB is expected to adopt tactics used by the Justice Department against the auto industry.

In 2010, a U.S. district judge scolded the department for filing a “deficient” complaint against Los Angeles auto lenders and dealers for pricing discrimination. He said prosecutors “did not consider other factors” affecting loan rates in their disparate impact analysis, and dismissed the case.

In appealing the decision, Justice admitted using “an approximation” to show non-Asian minorities “are almost 50% more likely than white borrowers” to pay higher rates on car loans.

Moreover, the department merely assumed the race of non-Asian minority borrowers, based on photos and surnames vs. self-identifying data.

Such use of “proxies” creates unreliable demographic data which further cast doubt on disparate-impact comparisons.

“The precise scope of the discrimination against non-Asians can be fleshed out during discovery,” Justice argued in its brief to California’s liberal Ninth Circuit Court of Appeals, which has agreed to let the case go forward. “Specific facts are not necessary.”

Despite the questionable methods, CFPB recently signed a memorandum of understanding with Justice to “wage an aggressive, coordinated effort” against lending bias.

Also in their crosshairs: private lenders that underwrite student loans.

The administration blames “unaffordable” financing for surging minority default rates on college debt. CFPB recently warned that the use of cohort default rates by lenders to “determine loan eligibility, underwriting and pricing may have a disparate impact on minority students.”

Obama’s Race Cops Cast Wider Net, Target Auto, Student Lenders – Investors.com.

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