Obama Inc. Adds Auto Loans

Obama Adds Auto, Student Loans To Racism Probe  by Paul Sperry

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."

With regulators casting a wider net, despite scant evidence of overt racism in lending, suspicions are growing that the administration is using racism charges as a pretext to force private lenders to subsidize favored political groups.

"It's about reallocating capital for ideological and political ends," said former chief Fannie Mae credit officer Edward Pinto, now a senior American Enterprise Institute fellow.

By criminalizing traditional methods of underwriting and pricing for risk, he says the Justice Department already has redirected billions of dollars in capital from the creditworthy to the credit poor. CFPB plans to rechannel even more.

"All Americans saw drops in their household wealth, but African-Americans and Hispanics experienced the steepest drops," Cordray said. "This inequity is compounded by unequal access to responsible credit, which makes it difficult or even impossible to achieve their financial goals."

"It seems clear that the administration is trying to turn economic inequality into a civil rights issue," said former Financial Crisis Inquiry Commission member Peter Wallison, author of "Bad History, Worse Policy."

But it could end up doing its political base more harm than good.

"Minorities will be hurt the most by policies that blindly promote underwriting standards that consistently finance failure," Pinto said.

Also, the losses from defaults and other risks — in addition to the billions in new "fair lending" compliance and legal costs — will be passed on to all bank customers, including the most financially responsible.

Wallison thinks a lot of banks will get out of the mortgage business, and possibly auto lending, "when they realize the spot they're in."

That reduced competition will only drive up the cost of financing for consumers.

Source: Investor's Business Daily: 3/6/13,  by Paul Sperry http://news.investors.com/ibd-editorials-perspective/030613-647029-cfpb-to-sue-racist-auto-student-lenders.htm#ixzz2MoGGtd5G

Comments:

The business principles required to maintain free enterprise in a free society do not include racial discrimination laws.  The latest reaction to this kind of scheme was to bundle up bad loans, slice them up and sell them as mortgage backed securities.  This caused the 2008 Meltdown.  After that Meltdown, all lenders were encouraged to restore prudent lending practices. So, why are we targeting auto loans for destruction ?  Could automobiles be the real target ?

This forces private businesses to abandon entire markets.  These markets are then gobbled up by our socialist federal government hastening our sovereign demise.

Most of the $1 trillion in outstanding student loans held by Sallie Mae are uncollectible. That turns into inflation and YOU pay the cost for government’s generosity.

How do you think this will end ?  When will automobile prices double like they did in 1978 ?  Countries who have allowed government to squeeze out private enterprise end up with no economy.  Countries who have converted to Communism have killed large portions of their populations and ended up broke.  

Norb Leahy, Dunwoody GA Tea Party Leader