Risks In Indirect Lending

FDIC examiners found that some indirect lenders allowed car dealers to charge more to female purchasers than to male purchasers. Almost all of the loans to males were at the bank's buy rate while the loans make to females were higher. In defending the practice, the bank said that women buy less expensive cars and the higher rates were necessary to make up the profit. However, the files showed that men who bought less expensive cars still were able to finance at the bank's buy rate. In a case of this type, the FDIC found that the bank had done nothing to monitor the rates, even though the bank made the credit decision. In this situation, the bank did not get the benefit of the discrimination. The dealer kept the difference in rates. However, the bank - not the dealer - was required to make restitution to the customers.

Copyright © 1998 Compliance Action. Originally appeared in Compliance Action, Vol. 3, No. 9, 7/98