Last week, the FTC put an end to a New York auto dealer’s discriminatory lending practices as the FTC brought its first Equal Credit Opportunity Act (“ECOA”) case in over ten years. Notably, two Commissioners are now calling for new rules to help further fight deception in the auto finance market. According to both Commissioners, this was the FTC’s first case alleging ECOA violations since the passage of the Dodd-Frank Act, which was signed into law July 21, 2010. ECOA prohibits credit discrimination on the basis of race, color, religion, national origin, sex, marital status, or age, or because someone gets public assistance.
On May 21, 2020, the FTC filed a Complaint for Permanent Injunction in the United States District Court for the Southern District of New York against Liberty Chevrolet, Inc. and its general manager, Carlo Fittanto, for allegedly violating the FTC Act, the Truth in Lending Act, and the ECOA. According to the Complaint, Defendants directed employees to charge higher interest rates and inflated fees in credit transactions to African-American and Hispanic customers. In addition, Defendants allegedly inflated costs, changed sales prices, and double-charged consumers for taxes and fees.
Although the Commission voted unanimously to file the Complaint and Stipulated Order, Commissioner Rohit Chopra and Commissioner Rebecca Kelly Slaughter each issued concurring statements calling for the FTC to promulgate new rules to help fight problems in the auto finance market. In his concurrence, Commissioner Chopra emphasized that, since 2010, when the Dodd-Frank Act authorized the FTC to promulgate rules to protect car buyers and honest auto dealers, the amount of outstanding auto loans has swelled to over $1 trillion. This could be attributed to that fact that car dealers no longer earn significant revenue from selling cars but instead make money through financing and additional add-ons to the cars. In turn, both Commissioners suggested that this revenue shift could leave the industry ripe for discriminatory and unfair abuses without FTC rulemaking.
Additionally, Commissioner Chopra promoted the use of disparate impact analysis as a tool to combat discrimination. According to Chopra, unlike the present case, it is rare to uncover such direct evidence of discriminatory intent, and because discrimination is often invisible to its victims, regulators must be proactive. Companies are collecting an ever-growing universe of personal data, and through sophisticated machine learning tools and other forms of predictive technology, this data could produce proxies for race and other protected classes. Disparate impact analysis, according to Chopra, could be a tool to uncover hidden forms of discrimination, not only in the automotive industry, but throughout the economy.
The Commissioners’ separate statements both indicated that this enforcement should encourage the FTC to begin using the power given to it to initiate a rulemaking process to combat consumer harms in the auto industry. Whether the FTC will start down that road and use disparate impact analysis as a map remains to be seen.