Question & Answer

Question: Are we facing any discrimination or technical Regulation B problems if we lend through car dealers? What are our risks if the car dealers are discriminating?

Answer: Yes! Whenever you have an arrangement to originate loans through or purchase loans from a third party, you are taking on the risk that they may violate laws and regulations. You cannot pass off the compliance obligation by originating through a third party, such as a car dealer. Plus, when you make or purchase the loan, your loan is no better than they made it. If they discriminated, so did you. So, how can you manage this risk? You should take several steps. First, make sure the dealer is aware of your fair lending policy and of Regulation B's substantive and technical requirements. Remind them at least once a year (more often if they make you nervous) of your fair lending policy and your expectation that they too will be fair dealers.

Second, analyze what they send you. Look at their sales or originations by prohibited basis to the extent that you can deduce it by race, ethnicity (using surnames), gender (using first names), age, marital status or other prohibited basis. You should look for any patterns in approvals, rates, prices, and the like several times throughout the year. If you find any problems, take them to management immediately and decide how to approach the dealer.

Copyright © 1998 Compliance Action. Originally appeared in Compliance Action, Vol. 3, No. 13 & 14, 10/98