Small Seller Financier versus CFPB - DOJ

[Ken Rishel]

The Feds recently settled a fair lending lawsuit against a seller 4inancier. This means that, once again, a attempt to use disparate impact evidence to establish that a lender engaged in a “pattern or practice” of intentional discrimination will not be tested in court.

The amended complaint alleged that there was a “statistically signi4icant” disparity between the way the seller 4inancier charged Asian and non-­?Asian borrowers. The contention was over the seller 4inancier’s practice of giving its employees “discretion to engage in subjective decision-­?making and setting interest rates within broad parameters.” According to the complaint, the employees’ discretion “was exercised in a manner that discriminated against non-­?Asian borrowers.”

In the complaint, the DOJ asserted various theories for its claim that the seller 4inancier had discriminated against borrowers on the basis of race or national origin, violating the Equal Credit Opportunity Act (ECOA). The complaint charged that the seller 4inancier “engaged in a pattern or practice of discrimination on the basis of race or national origin.” It also charged that “the discriminatory policies and practices, “were intentional, willful, and were implemented with reckless disregard for the rights of non-­?Asian and Hispanic customers.”

The seller 4inancier agreed to a $125,000 4ine and to exit the 4inance business. They further agreed that if any of the principals reentered the business of lending that they would presubmit a written lending policy and procedure manual for government approval before making any loans as well as an automatic annual review of their lending operation, and lending compliance training for owners, of4icers, employees, and agents of the new lending entity. In March, the CFPB announced their intent to focus of seller 4inance operations and this is just the 4irst of many cases the CFPB has referred to the FBI and DOJ attorneys. Many more are coming.

From the September issue of the Chattel Finance Newsletter - reprinted by permission