Monday, August 31, 2015

We're from the CFPB, and here to raise the cost of your auto loan

The WSJ reports on the latest coup from Obama Administration--thanks to Dodd-Frank;
A federal regulator’s campaign to fight bias against minorities is changing the way many car loans are priced. Those efforts could mean some consumers will pay more.
The Consumer Financial Protection Bureau has reached more than $200 million in antidiscrimination agreements since 2013 with several large car-financing companies, including Ally Financial Inc. and American Honda Finance Corp., over allegations that dealers charged higher interest rates for African-Americans, Hispanics and other minority buyers.
The CFPB was specifically prohibited from interfering in the car lending business, but where there's a will.... All that the Bureau has accomplished is to change the way different components of an auto loan are structured. Apparently eliminating the most efficient--competitively arrived at--method for lenders and auto dealerships. So, with a less efficient process...surprise!
As part of its settlement with the CFPB and Justice Department, Honda’s lending unit agreed to lower its maximum dealer-markup cap to 1.25 percentage points from 2.25 points. But it has also decided to pay dealers 1% of the loan value out of its own pocket, while also raising the wholesale rate for car loans.

Under Honda’s new pricing plan, borrowers with a relatively high credit score of 760 or above would pay a wholesale rate of at least 3.4% for a new car loan, up from 2.3% before the settlement, according to a pricing sheet distributed by Honda to dealers in Texas and reviewed by The Wall Street Journal. Add in a dealer markup of 0.5 percentage point, for example, and the borrower could end up with an annual percentage rate of 3.9%, compared with 2.8% before. Over the life of a four-year $25,000 loan, that would add $586 in interest payments.
Hey, to the CFPB mafia, it's other people's money.

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