[House Hearing, 116 Congress]
[From the U.S. Government Publishing Office]
EXAMINING DISCRIMINATION
IN THE AUTOMOBILE LOAN
AND INSURANCE INDUSTRIES
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON OVERSIGHT
AND INVESTIGATIONS
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTEENTH CONGRESS
FIRST SESSION
----------
MAY 1, 2019
----------
Printed for the use of the Committee on Financial Services
Serial No. 116-21
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
EXAMINING DISCRIMINATION IN THE AUTOMOBILE LOAN AND INSURANCE
INDUSTRIES
EXAMINING DISCRIMINATION
IN THE AUTOMOBILE LOAN
AND INSURANCE INDUSTRIES
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON OVERSIGHT
AND INVESTIGATIONS
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTEENTH CONGRESS
FIRST SESSION
__________
MAY 1, 2019
__________
Printed for the use of the Committee on Financial Services
Serial No. 116-21
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
______
U.S. GOVERNMENT PUBLISHING OFFICE
37-520 PDF WASHINGTON : 2020
HOUSE COMMITTEE ON FINANCIAL SERVICES
MAXINE WATERS, California, Chairwoman
CAROLYN B. MALONEY, New York PATRICK McHENRY, North Carolina,
NYDIA M. VELAZQUEZ, New York Ranking Member
BRAD SHERMAN, California PETER T. KING, New York
GREGORY W. MEEKS, New York FRANK D. LUCAS, Oklahoma
WM. LACY CLAY, Missouri BILL POSEY, Florida
DAVID SCOTT, Georgia BLAINE LUETKEMEYER, Missouri
AL GREEN, Texas BILL HUIZENGA, Michigan
EMANUEL CLEAVER, Missouri SEAN P. DUFFY, Wisconsin
ED PERLMUTTER, Colorado STEVE STIVERS, Ohio
JIM A. HIMES, Connecticut ANN WAGNER, Missouri
BILL FOSTER, Illinois ANDY BARR, Kentucky
JOYCE BEATTY, Ohio SCOTT TIPTON, Colorado
DENNY HECK, Washington ROGER WILLIAMS, Texas
JUAN VARGAS, California FRENCH HILL, Arkansas
JOSH GOTTHEIMER, New Jersey TOM EMMER, Minnesota
VICENTE GONZALEZ, Texas LEE M. ZELDIN, New York
AL LAWSON, Florida BARRY LOUDERMILK, Georgia
MICHAEL SAN NICOLAS, Guam ALEXANDER X. MOONEY, West Virginia
RASHIDA TLAIB, Michigan WARREN DAVIDSON, Ohio
KATIE PORTER, California TED BUDD, North Carolina
CINDY AXNE, Iowa DAVID KUSTOFF, Tennessee
SEAN CASTEN, Illinois TREY HOLLINGSWORTH, Indiana
AYANNA PRESSLEY, Massachusetts ANTHONY GONZALEZ, Ohio
BEN McADAMS, Utah JOHN ROSE, Tennessee
ALEXANDRIA OCASIO-CORTEZ, New York BRYAN STEIL, Wisconsin
JENNIFER WEXTON, Virginia LANCE GOODEN, Texas
STEPHEN F. LYNCH, Massachusetts DENVER RIGGLEMAN, Virginia
TULSI GABBARD, Hawaii
ALMA ADAMS, North Carolina
MADELEINE DEAN, Pennsylvania
JESUS ``CHUY'' GARCIA, Illinois
SYLVIA GARCIA, Texas
DEAN PHILLIPS, Minnesota
Charla Ouertatani, Staff Director
Subcommittee on Oversight and Investigations
AL GREEN, Texas Chairman
JOYCE BEATTY, Ohio ANDY BARR, Kentucky, Ranking
STEPHEN F. LYNCH, Massachusetts Member
NYDIA M. VELAZQUEZ, New York BILL POSEY, Florida
ED PERLMUTTER, Colorado LEE M. ZELDIN, New York, Vice
RASHIDA TLAIB, Michigan Ranking Member
SEAN CASTEN, Illinois BARRY LOUDERMILK, Georgia
MADELEINE DEAN, Pennsylvania WARREN DAVIDSON, Ohio
SYLVIA GARCIA, Texas JOHN ROSE, Tennessee
DEAN PHILLIPS, Minnesota BRYAN STEIL, Wisconsin
C O N T E N T S
----------
Page
Hearing held on:
May 1, 2019.................................................. 1
Appendix:
May 1, 2019.................................................. 41
WITNESSES
Wednesday, May 1, 2019
Clarke, Kristen, President and Executive Director, Lawyers'
Committee for Civil Rights Under Law........................... 9
Cross, Rachel J., Policy Analyst, Frontier Group................. 7
Lynch, James, Chief Actuary, and Senior Vice President, Research
and Education, Insurance Information Institute................. 12
Rivera, Joshua, Data and Policy Advisor, Poverty Solutions at the
University of Michigan......................................... 11
Van Alst, John W., Attorney, National Consumer Law Center (NCLC),
and Director, Working Cars for Working Families, an NCLC
Project........................................................ 5
APPENDIX
Prepared statements:
Clarke, Kristen,............................................ 42
Cross, Rachel J.............................................. 51
Lynch, James,................................................ 57
Rivera, Joshua............................................... 63
Van Alst, John,.............................................. 74
Additional Material Submitted for the Record
Green, Hon. Al:
Written statement of the National Association of Insurance
Commissioners.............................................. 165
Written statement of the National Association of Mutual
Insurance Companies........................................ 167
Written statement of UnidosUS................................ 173
Barr, Hon. Andy:
Report entitled, ``Fair Lending: Implications for the
Indirect Auto Finance Market,'' prepared by Charles River
Associates for the American Financial Services Association,
dated November 19, 2014.................................... 180
Report of the Insurance Research Council entitled, ``Auto
Insurance Affordability: Cost Drivers in Michigan,'' dated
April 2019................................................. 323
Joint insurance trades letter, dated April 29, 2019.......... 342
Written statement of the National Association of Mutual
Insurance Companies........................................ 343
Written statement of the National Automobile Dealers
Association................................................ 349
Beatty, Hon. Joyce:
Written responses to questions for the record from Joshua
Rivera..................................................... 359
Steil, Hon. Bryan:
Written statement of the American Property Casualty Insurance
Association................................................ 362
Zeldin, Hon. Lee:
Written statement of the National Automobile Dealers
Association................................................ 364
EXAMINING DISCRIMINATION
IN THE AUTOMOBILE LOAN
AND INSURANCE INDUSTRIES
----------
Wednesday, May 1, 2019
U.S. House of Representatives,
Subcommittee on Oversight
and Investigations,
Committee on Financial Services,
Washington, D.C.
The subcommittee met, pursuant to notice, at 10:05 a.m., in
room 2128, Rayburn House Office Building, Hon. Al Green
[chairman of the subcommittee] presiding.
Members present: Representatives Green, Beatty, Tlaib,
Garcia of Texas; Barr, Posey, Zeldin, Loudermilk, Davidson,
Rose, and Steil.
Ex officio present: Representatives Waters and McHenry.
Also present: Representative Budd.
Chairman Green. Good morning, everyone.
The Oversight and Investigations Subcommittee will come to
order.
The title of today's subcommittee hearing is, ``Examining
Discrimination in the Automobile Loan and Insurance
Industries.''
Without objection, the Chair is authorized to declare a
recess of the subcommittee at any time. Also, without
objection, members of the full Financial Services Committee who
are not members of the subcommittee may participate in today's
hearing for the purposes of making an opening statement and
questioning the witnesses. Mr. Budd appears to be here; I ask
unanimous consent that he be allowed to participate. Without
objection, it is so ordered.
Today's hearing, as I indicated, is styled, ``Examining
Discrimination in the Automobile Loan and Insurance
Industries'', and it is long overdue.
I now recognize myself for 5 minutes to give an opening
statement.
This hearing is long overdue. The empirical evidence has
shown that non-white vehicle buyers who were more qualified
than white buyers received costlier loans 62.5 percent of the
time, according to a 2018 study by the National Fair Housing
Alliance. African-American males pay more for dealer markups
than white males, and these dealer markups, which are unrelated
to credit risk, allow for predatory pricing and invidious
discrimination.
A 2015 Consumer Federation of America (CFA) study found
that a driver living in a predominantly African-American
neighborhood can expect to pay insurance premiums that are on
average 70 percent more than similarly situated drivers in
neighborhoods where African Americans are in the minority.
A 2017 CFA study found that most auto insurers charge
middle-aged women higher rates than men. In Houston Texas,
women with perfect driving records pay on average $75 more than
men with the same record, at the same address, with the same
vehicle.
At $1.26 trillion, auto loans are the third largest
household debt category, after mortgage loans and student
loans. What once was considered a luxury is now a necessity as
evidenced by the fact that nearly every American household has
at least one car.
Let me summarize by saying this: I said that this hearing
was long overdue and it is because the empirical evidence that
I have cited--which is but a scintilla of what is available--
seems to overwhelmingly indicate that certain persons pay more
than others for the same product, and these bits of evidence
have been called to our attention by way of advocacy groups and
persons who are intellectuals, scholarly persons, and they use
a method called Testing. And using this Testing, this empirical
evidence seems to be valid; it seems to indicate that there are
problems that we have to address.
The purpose of this hearing is not only to expose the
empirical evidence but also to address or conclude in some way
that there are means by which we can address the problems that
will be called to our attention.
I am grateful that we have witnesses here who can give us
the additional information that we will need to draw our
conclusions, but I also want to close with this: I think that
we owe it to ourselves as a country to make sure every person
is treated fairly when making an automobile purchase. We have
the ability and the power and the authority in Congress to do
this. The question is, do we have the will to make a difference
for people who are in need of a car, who are probably not
making as much money as Members of Congress but who dearly need
the opportunity to have this necessity so that they can get to
and from their jobs. And my hope is that we will be able to
achieve that fairness through this hearing.
With this said, I am going to reserve the balance of my
time for Chairwoman Waters.
I will now yield to the ranking member of the subcommittee,
Mr. Barr.
Mr. Barr. Thank you, Chairman Green.
And I want to start by acknowledging our Subcommittee
Chairman, Al Green, for convening this hearing. Thank you, Mr.
Chairman, especially for all your efforts over the course of
your congressional career and working to combat discrimination,
race discrimination which is to be commended, and I am pleased
to participate in this hearing. I welcome all of our witnesses;
all of your work and efforts are a great value to our committee
and we thank you for being here today.
Obviously, race discrimination is abhorrent and it should
not be tolerated in auto lending or the insurance industries or
any industry. There is anecdotal evidence of auto lenders
charging different rates based on a borrower's race so we are
here to understand today how the industry has changed, how it
prices risk without discriminating on the basis of race, and
what needs to be done to make sure that everyone is treated
fairly regardless of race.
This committee has spent considerable time examining
discrimination in auto lending and we take this issue very
seriously. The committee has investigated and released several
reports on this matter in the past and our work is ongoing.
Studies purporting to show widespread discrimination in
auto lending have routinely proven flawed, for example a 2013
report by the Consumer Financial Protection Bureau (CFPB)
contended that dealer-assisted auto financing has a ``disparate
impact on the price of credit for consumers in protected
classes.'' As it turned out, the CFPB's methodology for
counting African Americans was off by 41 percent, among many
other problems.
The committee's investigation of the matter found that the
CFPB knew its methods were deeply flawed and prone to
significant error, according to internal documents, but the
CFPB released its study anyway.
To be clear, racial discrimination in auto lending is
illegal, as it should be. We must ensure that the industry does
not move backwards and we need to base that work on accurate
data and reliable findings. States continue to be the most
effective regulators of the auto lending industry as has been
the case for almost a century. This was certainly true in 2010
when the Dodd-Frank Act was enacted. Section 1029 of the Dodd-
Frank Act specifically excluded auto dealers from the CFPB's
jurisdiction; it was obvious then as it is now that States were
best positioned to ensure that consumers are protected.
We will also examine the auto insurance industry. The
United States has the largest and most competitive market for
auto insurance in the world. Like auto lending, the auto
insurance industry is regulated at the State level. In fact,
these are two of the most heavily regulated industries in the
entire financial services portfolio. The price for auto
insurance varies throughout the country depending on a litany
of variables, and the competitive nature of this industry has
led to more affordable prices for consumers.
As with so many other things, the key to lower prices is
free markets. We need look no further than Illinois to
understand why; in Illinois, an inadvertent lapse in
regulations allowed a flood of insurance companies to enter the
market, that competition drove down prices for consumers, and
the Illinois Legislature chose not to enact new rate
regulations.
It is not just competition that affects the price of
insurance, State laws greatly affect prices as well. In 2019,
Michigan was ranked as the State with the highest insurance
premiums. The high prices in Michigan reflect decisions by the
State Legislature and the insurance commissioner; Michigan's
No-Fault Insurance Law provides for potentially unlimited
lifetime medical assistance for people involved in accidents
and this law leads to abuse of the legal system and fraud.
Insurance experts have drawn a direct correlation between
the No-Fault Insurance Laws and Michigan's high rates.
Unlawful discrimination in setting insurance rates is
inexcusable and it is already prohibited at the Federal and
State level. In addition, industry standards forbid the use of
certain factors such as race when determining rates. Those in
the industry have worked to create a system where the insurance
credit-ratings are purposely blind to the race of an applicant.
I look forward to working with the chairman to ensure that
discrimination does not occur in auto lending or insurance, but
I also do not want to eliminate risk-based pricing in a way
that could increase premiums for most drivers.
Thank you. And I yield back.
Chairman Green. Thank you.
And the Chair will now yield 1 minute to the Chair of the
full Financial Services Committee, the Honorable Maxine Waters.
Chairwoman Waters. Thank you very much, Mr. Chairman.
Buying a car is a significant purchase for many Americans
and should be a fair and transparent transaction, free of
discrimination. Unfortunately, this is not the case for persons
of color.
The National Fair Housing Alliance, in a test of auto
lending discrimination, found that nearly two-thirds of
minority loan applicants received higher-cost financing options
from automobile dealers than less-qualified white applicants.
Last Congress, Republicans impeded enforcement of fair
lending laws, making discrimination potentially worse. They
used the Congressional Review Act to rescind the Consumer
Financial Protection Bureau's much-needed guidance to indirect
auto lenders on how to comply with the Equal Credit Opportunity
Act.
Discrimination also exists in the auto insurance industry.
For example, the Consumer Federation of America found that auto
insurers charged women and persons living in predominantly
African-American communities disproportionately higher
premiums. These types of practices warrant congressional
scrutiny, analysis, and ultimately legislation.
With that, Mr. Chairman, I yield back the balance of my
time.
Chairman Green. The gentlelady yields back.
The Chair now recognizes the ranking member of the Full
Committee, the Honorable Mr. McHenry.
Mr. McHenry. Thank you, Chairman Green. And thank you for
your leadership, especially on this topic.
And thank you to Ranking Member Barr, as well, for his
leadership.
So let me be clear, there is no place for discrimination,
period. The idea that lenders or insurers would charge a
different rate based on skin color, ethnicity, or gender is
contrary to everything that we stand for as a society.
To have this discussion, we must have the most accurate
statistics available. As Congressman Barr outlined, the CFPB
used an algorithm that attempted to identify the race of
borrowers based simply on their name and address. I don't have
to look any further than my own community to see the failure of
that practice, seeing as there are two families named McHenry
in my hometown, and our race and ethnicity is different. So a
name does not do justice nor does a zip code simply do justice
to an understanding of race.
As it turns out, the CFPB later acknowledged that algorithm
had a 20 percent error rate. And then an independent analysis
of it said that it could be as high as 40 percent. Both the
lending and insurance industries, which are the focus of
today's hearing, are regulated at the State level. So I wanted
to understand if there any limitations on the States taking
appropriate action to make sure that this does not happen.
So with that, thank you, Mr. Green.
Chairman Green. The gentleman yields back.
We now welcome our witnesses: Mr. John Van Alst, an
attorney at the National Consumer Law Center, and the director
of Working Cars for Working Families, an NCLC project; Ms.
Rachel J. Cross, a policy analyst at Frontier Group; Ms.
Kristen Clarke, president and executive director of Lawyers'
Committee for Civil Rights Under Law; and Mr. Joshua Rivera--
Ms. Tlaib, a member of this committee, is from Michigan, so she
will say more about Mr. Rivera.
Ms. Tlaib. Oh, are you recognizing me, Mr. Chairman?
Chairman Green. Yes.
Ms. Tlaib. Thank you so much.
I just want to thank so much Mr. Rivera, who co-authored,
``Auto Insurance and Economic Mobility in Michigan,'' but I
also want my colleagues to know our emphasis and advocacy
around non-driving factors, which go beyond just race-based
kind of discrimination.
I am so thankful for the leadership of Ranking Member Barr,
Chairman Green, and our incredible Chairwoman Maxine Waters for
making this a very important critical issue to talk about the
fact that we are increasingly using non-driving factors, people
who become widowed, retired, and so forth are being considered
as factors against car rates.
Thank you so much, Mr. Chairman.
Chairman Green. Thank you for your remarks.
Moving on, the final witness will be Mr. James Lynch, the
senior vice president of research and education at the
Insurance Information Institute.
I would like to welcome and thank you all for being here.
The witnesses will each be recognized for 5 minutes to give an
oral presentation of their testimony. And without objection,
the witnesses' written statements will be made a part of the
record. Once the witnesses have finished presenting their
testimony, each member of the subcommittee will have 5 minutes
within which to ask questions.
On your table, and this is directed to the witnesses, you
will see three lights: the green light means that you may go;
the yellow light is the indicator that you have 1 minute left
and you are running out of time; and the red light of course
means that you are out of time. The microphones are very
sensitive so please make sure you speak directly into them.
With that, Mr. Van Alst, you are now recognized for 5
minutes.
STATEMENT OF JOHN W. VAN ALST, ATTORNEY, NATIONAL CONSUMER LAW
CENTER (NCLC), AND DIRECTOR, WORKING CARS FOR WORKING FAMILIES,
AN NCLC PROJECT
Mr. Van Alst. Chairman Green, Ranking Member Barr, and
distinguished members of the subcommittee, thank you for
inviting me here today to discuss discrimination in cars.
I am an attorney with the National Consumer Law Center
where I work with Legal Services attorneys, government
attorneys, and private attorneys across the country, all of
whom help low-income families with issues with cars and car
finance.
I also direct NCLC's Working Cars for Working Families
project which works to ensure that families get a fair deal
when buying and financing a car, and that the lack of a car
does not stand in the way of a family's ability to become
economically successful.
A car can provide physical mobility but also economic
mobility, allowing families to get to work, live in more
affordable housing, and take advantage of educational
opportunities.
While cars can be a tool to help escape poverty, they are
very expensive. In 2018, the average used car price exceeded
$20,000, and for a consumer with subprime credit, monthly
payments were over $400 and the average interest rate was over
16 percent. But for some consumers, buying, financing, and
using a car can be even more expensive because of their race
and ethnicity. Some are charged hundreds and even thousands of
dollars more in interest rate markups. These are discretionary
increases that the dealer makes to the interest rates which
have already been objectively set based on the consumer's
credit risk.
In 12 cases that the NCLC co-counseled between 1998 and
2007, we coded millions of transactions for race based upon
driver's license data. Within each credit tier, dealers marked
up African Americans' interest rates almost twice as often as
whites. And when African Americans rates were marked up, the
markups were on average almost double those charged to whites.
And the disparities don't stop at financing. Some consumers
are more likely to be pressured to buy add-on products such as
service contracts, and GAP. They are then charged more for
these same products they are pressured to buy.
In 2017, we examined a data set of millions of add-on
transactions and found that Hispanic car-buyers were charged
higher markups for add-ons at both the State and dealer level.
These disparities make cars more expensive for some races
and ethnic groups. They unnecessarily increase the cost of a
car and increase the chance of default. In some cases, these
higher costs keep families from getting a car at all. This
contributes to disparities we see across the country in terms
of access to cars.
For families at or below the Federal Poverty Guidelines, 13
percent of white households lack access to a car compared to 31
percent of African-American households and 20 percent of
Hispanic households.
Many of the disparities we will discuss here today are only
possible because the market for cars and especially car-
financing used cars is opaque and inconsistent.
Dealers have tremendous discretion to charge consumers
different prices and the price setting takes place in a back
room where dealers have to decide quickly how far they can push
the consumer, and no one knows what anyone else pays for the
car, the financing or the add-ons.
A more consistent and transparent marketplace would not
only benefit consumers of color, but everyone including dealers
and finance entities that want to compete fairly and openly on
price and quality on a level playing field.
Towards this goal, we must ban dealer interest-rate
markups, amend the Equal Credit Opportunity Act to enable data
collection, prohibit discrimination in the pricing of goods and
services in addition to discrimination in financing, increase
enforcement of the Equal Credit Opportunity Act; and increase
enforcement of general protections against general abuses in
the sale or financing of cars.
Given the evidence we have seen in discrimination in
financing and other parts of the sale transaction, it is likely
that many other abuses from yo-yo sales, to failure to pay off
existing liens, are more likely to affect people of color.
I commend the subcommittee for holding today's hearing on
such an important topic and we stand ready to work with this
subcommittee and other interested parties in bringing
consistency, transparency, and fairness to the auto market.
Thank you.
[The prepared statement of Mr. Van Alst can be found on
page 74 of the appendix.]
Chairman Green. Thank you. We will next hear from Rachel J.
Cross. You have 5 minutes.
STATEMENT OF RACHEL J. CROSS, POLICY ANALYST, FRONTIER GROUP
Ms. Cross. Thank you for the opportunity to appear before
you today to discuss the state of U.S. auto lending. I am a
policy analyst with Frontier Group and I am also testifying on
behalf of the U.S. PIRG, the Public Interest Research Group
with whom we co-authored our recent report, ``Driving into
Debt,'' which examines how auto lending has changed since the
Great Recession and what this means for consumers.
In much of the country, owning a car is a virtual
necessity. It is how many of us get to work, to school, to the
grocery store and doctor; a car, in short, is the price of
admission to living a full and productive life, but owning a
car is also expensive and has driven millions of households to
take on debt. Right now, Americans owe more for our cars than
we ever have before; outstanding auto debt is over $1.2
trillion, and since the end of 2009 that amount has increased
by over 50 percent.
But it is not just that the overall auto debt has reached
historic levels; the number of Americans who owe for their cars
is also the highest in U.S. history and consumers are at risk,
delinquencies are rising, the percentage of auto debt that is
seriously delinquent, meaning 90 days late at least or more, is
the highest it has been since 2012 and it is still rising. More
than 7 million Americans have missed at least 3 monthly car
payments.
These numbers are concerning on their own, but what makes
them deeply troubling is that they are happening in a strong
U.S. economy, something important has been happening in the
auto credit market. The lending practices since the recession
that have boosted auto sales have come at a cost, the increased
risk of financial instability for millions of American
households.
There are a few key steps that have gotten us to the point
that we are at now. In the aftermath of the 2008 financial
crash, investors and lenders alike noticed that auto debt
performed relatively well compared to other securities during
the recession and this sparked more interest in bringing more
borrowers into the auto credit market and lenders of all types
did so.
First, they loosened standards for prospective borrowers.
We found in our report that auto debt has risen across all
income levels but it has risen the fastest among those with the
lowest incomes. Since 2009, borrowing by residents of low-
income neighborhoods has increased nearly twice as quickly as
borrowing by residents of the highest-income neighborhoods.
Lending in the sub-prime market followed a similar trajectory.
Lenders have used other tools to bring borrowers in the
marketplace, including the lengthening of loan terms. Extending
a loan term brings down that monthly payment, which is an
important measure for determining affordability particularly
for lower-income consumers, but it also means that the consumer
will pay more over the life of the loan due to interest
payments, and will spend more time underwater or owing more for
their car, and that is even worse.
Consumers with a 6-year loan are twice as likely to default
as others with a 5-year loan, and those borrowers are also more
likely to have a poor credit history, lower income, and to pay
higher interest rates than other borrowers.
In 2017, 42 percent of all loans generated had terms of 6
years or more. This period also saw the rise of more outright
abusive and predatory tactics in one specific part of the auto
credit market: dealer financing.
A direct loan that a consumer gets directly from a
financial institution like a bank or credit union is, generally
speaking, a safer bet for consumers. Indirect lending, however,
is when the consumer finances through a dealership, where the
dealer is a creditor, assigns the loan to another financial
institution, and often has the consumer sign a retail
installment sales contract. Dealer-arranged financing has
weaker regulations and oversight than direct loans, enabling a
number of abusive and predatory tactics.
One area of abuse is excessive interest rates. When a
dealer sells its financed contract to another lender, they are
able to mark up that interest rate and pocket the difference as
profit.
Having consumers sign a retail installment sales contract
also allows the dealer to charge an interest rate that can
sometimes exceed State usury limits. In one example, a package
of securities that Santander Bank was selling to investors was
found to have 57 percent of all loans generated in the State of
New York to be carrying interest rates that are so high, they
would have been illegal if they had been from direct loans
between a consumer and a bank. But because they were dealer-
financed and indirect loans, it was legal.
There has also been evidence of lenders failing to verify
the income of borrowers, and even car salesmen inflating the
consumer's income to ensure that they qualify for financing
even if they ultimately cannot afford it. In key respects, auto
lending in the last decade has been a Groundhog-Day repeat of
the exact same practices that brought us to the 2008 market
crash.
Dealer-arranged financing has also enabled discriminatory
pricing. Since its creation, the Consumer Financial Protection
Bureau has investigated a number of large captive finance
groups that provide indirect financing for charging borrowers
of color higher interest rates than similarly situated white
borrowers. These include some of the largest indirect lending
firms in the nation like Toyota Motor Credit. These policies
led to many African-American borrowers paying $200 more on
average for financing.
The CFPB investigations have repeatedly found that lenders
giving dealers the ability and incentive to mark up interest
rates enables this kind of discrimination. However, since the
congressional repeal of the CFPB's Indirect Auto Guidance and
changes in leadership, we have seen a lack of will to continue
protecting consumers as they deserve.
These are only a few examples of the way that dealer
financing threatens the financial well-being of Americans. The
entire list of threats that consumers, in particular the most
vulnerable amongst us face, is appalling, and that so little
action has been taken to stop these predatory behaviors is even
more appalling.
Thank you.
[The prepared statement of Ms. Cross can be found on page
51 of the appendix.]
Chairman Green. We will now hear from Kristen Clarke. You
are recognized for 5 minutes.
STATEMENT OF KRISTEN CLARKE, PRESIDENT AND EXECUTIVE DIRECTOR,
LAWYERS' COMMITTEE FOR CIVIL RIGHTS UNDER LAW
Ms. Clarke. Chairman Green, Ranking Member Barr, and
members of the subcommittee, my name is Kristen Clarke and I am
president and executive director of the Lawyers' Committee for
Civil Rights Under Law. Thank you for the opportunity to
testify today about the discrimination in the automobile loan
industry.
The Lawyers' Committee is a national non-partisan civil
rights organization created at the request of President John F.
Kennedy to activate the private bar in the fight against
discrimination, and for over 55 years we have been on the
frontlines of our nation's fight for justice in the areas of
economic justice, voting rights, fair housing, criminal
justice, education, hate crimes, and more.
We know that eliminating lending discrimination, root and
branch, particularly across the auto industry must stand as a
core civil rights priority today.
Discriminatory auto lending poses grave financial danger to
African-American, Latino, and other vulnerable consumers;
increasingly, lenders are taking advantage of a highly
unregulated and unmonitored market to promote discriminatory
and predatory practices. We thank this committee for sounding
an alarm about this and undertaking careful fact-finding to
identify a remedial response.
All Americans need reliable transportation to access jobs
and schools, as has been noted, and we know that communities of
color that are deprived of economic investment often lack
effective public transportation, those who can't rely on public
transportation often need an affordable loan to finance the
purchase of a car and to help them build good credit.
As the third largest source of outstanding household debt
after mortgages and student loans, car loans and their impact
on communities of color warrant greater scrutiny.
There is a stark racial wealth divide in our country today.
A typical white family has $140,000 in wealth, while a typical
African-American family has just over $3,400. Abusive,
predatory automobile lending and lack of access to equitable
financial services contribute to and exacerbate this racial
wealth gap.
Widespread racial discrimination in the market is not new
and has been well documented over the past 30 years. African
Americans and other consumers of color face discrimination in
various ways when purchasing and financing a car. They are
often charged higher prices, higher interest rates, and more
expensive insurance rates on the basis of their race or
ethnicity, and they are also targeted for predatory sales and
repossession schemes.
Racial bias also seeps into the industry by way of
discretionary dealer markups and often indirect auto lenders
fail to have controls in place to prevent discretionary markup-
pricing disparities resulting from car dealers' racial bias,
resulting in people of color being burdened with more expensive
loans than white consumers.
While much lending discrimination can be identified through
statistics, there is also evidence of intentional
discrimination throughout the industry. In 2014 the Justice
Department secured settlements with Auto Fare and Southeastern
Auto Corp in North Carolina for engaging in reverse redlining.
The dealerships targeted black consumers with unfair and
predatory credit practices and the dealership operator
expressed his view that African-American customers have fewer
credit options, making them more likely to accept predatory
contracts.
A recent 2018 study by the National Fair Housing Alliance
used matched-pair testing in Virginia that showed that almost
63 percent of the time, borrowers of color received costlier
loans even though they were more qualified than their white
counterparts.
Under this Administration, the Justice Department has
retreated from Fair Lending enforcement against dealers, not
surprisingly after the rollback of the critical 2013 CFPB
Guidance we saw several lenders who had previously implemented
flat-fee models, revert back to discretionary dealer-rate
programs.
What must be done? We ask Congress to enact robust
legislation to increase protections for borrowers of color by
prohibiting or significantly limiting discretionary dealer
markups. We need more oversight over the Justice Department and
the CFPB to understand why their enforcement activity has come
to a grinding halt. And finally we need more transparency and
data collection to help us get to better understand that the
extent of discrimination across the auto lending industry.
Thank you.
[The prepared statement of Ms. Clarke can be found on page
42 of the appendix.]
Chairman Green. Thank you.
Mr. Joshua Rivera, you are now recognized for 5 minutes.
STATEMENT OF JOSHUA RIVERA, DATA AND POLICY ADVISOR, POVERTY
SOLUTIONS AT THE UNIVERSITY OF MICHIGAN
Mr. Rivera. Chairman Green, Ranking Member Barr, and
distinguished members of the subcommittee, thank you for
inviting me to testify today. I appreciate the opportunity to
discuss auto insurance and affordability and the
disproportionate impact of certain rate-setting practices on
low-income and minority drivers.
Our team at Poverty Solutions first got the idea to
research auto insurance directly from Detroit residents; to our
surprise, in conversation after conversation with local
stakeholders, the issue of auto insurance just kept coming up
as a major poverty issue.
When we started to look at the data what we found stunned
us. Michigan has the most expensive automobile insurance in the
U.S., with an estimated annual premium in 2018 of $2,610,
almost double the national average. And with an average annual
premium of $5,414, Detroiters fac the most expensive car
insurance rates in the country.
The sticker shock prompted us to research how the State got
here in the first place. The resulting policy brief, ``Auto
Insurance and Economic Mobility in Michigan: A Cycle of
Poverty,'' documents the problems and offers potential
solutions for auto insurance reform in Michigan. I have
included a copy of the policy brief with my written testimony
for the record.
Michigan is not alone in facing rising auto insurance
rates. In 2018, 184 million U.S. drivers, or nearly 4 out of
every 5 drivers, faced a rate increase. In addition to
Michigan, Louisiana, Rhode Island, and Florida also faced
annual average premiums that are above $2,000. The U.S.
Treasury Department's Federal Insurance Office deems auto
insurance unaffordable in areas where premiums exceed 2 percent
of a zip code's median household-income.
Using recent data, we found that auto insurance rates
represent more than 2 percent of median household-income in 97
percent of Michigan's zip codes, yet the burden is
substantially greater for lower-income and minority
communities.
In places like Flint, rates eat up between 8 and 24 percent
of residents' pre-tax income and we also found that rural
communities were especially hit hard by high rates; this
matters because these communities deal with particularly poor
roads and they have to drive longer distances for employment,
which makes affordable transportation matter just that much
more.
These costs make it harder for people to move up the
economic ladder especially for low-income families, locked out
of the auto insurance market by a lack of affordable coverage
options. Take the case of a family where the household head is
above the age of 65 and relies on Social Security as a primary
source of income: in 2018, the maximum monthly Social Security
benefit was $2,788 a month, and it would take nearly 2 months'
worth of Social Security benefits to cover the annual cost of
insurance in Detroit.
Why are rates so high? There are many factors at play, from
broader economic trends to rising health care costs and
differences in State regulatory practices, yet one reason why
rates vary so considerably between drivers is that insurance
companies use non-driving characteristics such as gender, zip
code, and credit scores to set premiums for customers. It is
reasonable to ask whether the use of non-driving factors in
setting premiums is unfair and whether there is potential for
discrimination in rate setting.
Of these factors, credit scores are by far the biggest cost
drivers for consumers, with rates more than doubling for those
of poor versus excellent credit, thus a single mother in
Detroit with a perfect driving record but bad credit could be
charged one of the highest auto insurance premiums in the
entire country.
What can be done? While numerous policy--to reduce auto
rates, are typically from the purview of States, Congress has
expressed interest in curtailing rate-setting practices at the
Federal level. In our report we called on Michigan to curb the
use of non-driving factors in setting rates following the model
of several other States that already do this.
Prohibiting the use of all non-driving factors in rate
setting may not be feasible as insurance companies must be able
to develop actuarially sound models, however, other States have
struck compromises on this. California, for example, has
established reasonable rate-setting guidelines and prohibits
the use of credit scores. Low-income drivers in cities pay
nearly 60 percent more for auto insurance than high-income
drivers.
In Los Angeles, the gap is only 9 percent, likely due to
regulations placed on insurers. And in Hawaii, where the use of
credit scores has been banned since 1987, the commissioner of
insurance testified before Congress in 2007 that despite the
ban, markets remained competitive and healthy.
In closing, with sensible reforms to our auto insurance
policies, we can lower transportation costs and dramatically
improve economic opportunity for families. Thank you, again,
for inviting me to share my research findings with you.
I would be happy to answer any questions.
[The prepared statement of Mr. Rivera can be found on page
63 of the appendix.]
Chairman Green. Thank you.
Mr. James Lynch, you are now recognized for 5 minutes.
STATEMENT OF JAMES LYNCH, CHIEF ACTUARY, AND SENIOR VICE
PRESIDENT, RESEARCH AND EDUCATION, INSURANCE INFORMATION
INSTITUTE
Mr. Lynch. Thank you.
I would like to take a moment to thank you, Representative
Green, and the entire committee for giving me the opportunity
to speak today.
My name is James Lynch. I am chief actuary and senior vice
president of research and education at the Insurance
Information Institute in New York. Founded in 1960, we are the
trusted source of unique data-driven insights to inform and
empower consumers.
Our members include 8 of the 10 largest personal auto
insurance writers in the United States. We provide objective,
fact-based information about insurance, information that is
rooted in economic and actuarial soundness.
I am a fellow of the Casualty Actuarial Society, the
leading property casualty actuarial organization in the world,
and I serve on the Society's board of directors.
I have more than a quarter century of experience in
property casualty insurance and reinsurance, and have held
senior actuarial positions at QBE The Americas, and White
Mountains Reinsurance of America.
And today I would like to discuss how companies set rates
for automobile insurance.
Because of court cases and Federal legislation that stretch
back decades, insurance companies are primarily regulated at
the State level. Every insurance company must satisfy the laws
and regulations of every State it operates in plus the District
of Columbia, so most large insurers have 51 sets of laws to
follow and 51 sets of regulators to satisfy.
Every State regulates what insurers can charge for personal
auto insurance. State laws ensure that rates aren't too high
because no State wants its consumers overcharged, or too low
because if rates are too low, an insurance company might lack
the funds to pay all the claims that it has said it will pay,
and are lower for drivers who are less likely to be in a crash
and higher for drivers who are more likely to be in a crash.
The company can only offer a discount if it can show that
the customer is less likely than the average customer to suffer
an insured loss; it can only surcharge if it can show the
customer is more likely than the average customer to suffer a
loss.
Insurers can't change rates daily or weekly, the way a
grocery store can change the price of a gallon of milk. They
must notify the State, usually beforehand, what they intend to
charge. In some States, the department of insurance must
explicitly approve changes in advance. The result is that auto
insurance is not priced according to the law of supply and
demand; it is a cost-plus product. Insurers estimate what they
will pay out in claims then add in expenses and a reasonable
profit.
In addition to State regulators, auto insurers operate in
an extremely competitive environment and an important part of
that competition is to develop sophisticated plans that
properly assess each customer's likelihood of being in a crash.
Insurers use teams of actuaries to figure out how to set
rates. They look for characteristics that successfully predict
the accident rate, the most famous perhaps is driving record;
drivers who have avoided accidents for several years are less
likely to be in an accident in the future but driving record is
not the only factor. The strongest by most accounts is
location, which tells a lot about the number of vehicles per
square mile, and just like with bumper cars, the more cars
there are in an area, the more likely they are to crash into
each other.
There are certain things that is important to know about
these rating variables.
First, they work, they are effective at gauging the
likelihood that a customer will be in an accident.
Second, they are selected after rigorous actuarial
analysis; every rating variable has been proven effective
through analysis of actual data.
Third, they are filed in advance with State regulators
along with statistical proof of their effectiveness; in some
States they must be approved in advance and they can't be
changed without going through the same regulatory process. Any
Federal effort to oversee rating variables will overlap
rigorous efforts that States already undertake.
Fourth, companies constantly review how effective these
factors are. If they don't work in the world, they are adjusted
or abandoned.
Fifth, the factors can change over time and actuaries
adjust those factors as a result, for example gender, is a
well-known commonly used variable and part of the reason it has
been effective is that men drive more miles than women but that
is changing. From 1963 to 2013, the number of miles the average
man drove increased by about a third but the number of miles
the average woman drove increased nearly 90 percent. The
predictive power of gender as a rating variable has changed
because the more miles you drive, the more likely you are to be
in a crash and women are approaching men and sometimes
exceeding men in that respect.
Sixth, insurers are constantly looking for new variables
and when they find one, the new one can change how much
emphasis is placed on the old ones.
And last, but certainly not least, the setting of private
passenger auto insurance rates is a color-blind process.
Insurers do not gather information based on race or income nor
do they discriminate against anyone on the basis of race or
income and they do not adjust the rates based upon any proxy
for race or income.
Thank you for your time. And I would be happy to respond to
any questions you may have.
[The prepared statement of Mr. Lynch can be found on page
57 of the appendix.]
Chairman Green. Thank you. And I thank all of the witnesses
at this time.
Let me yield myself 5 minutes. And I would like to start
with something very basic. Do you believe that testing is a
means by which you can determine whether discrimination exists
in auto lending? If so, would you just kindly extend a hand
into the air, I would like to make a record?
I take it, Mr. Rivera, you do not believe that testing is a
means by which we can determine whether discrimination exists?
Mr. Rivera. The question in auto lending is a little bit
outside of my purview so I will defer to the experts on auto
lending.
Chairman Green. You will defer.
Mr. Lynch. I am in the same boat.
Chairman Green. You will defer.
Mr. Lynch. Auto lending is a little bit outside of my
world.
Chairman Green. Well, persons who claim expertise--Ms.
Clarke, Ms. Cross, and Mr. Van Alst--indicate that testing is a
good tool.
With this tool, have we been able to validate the claims
that this invidious discrimination exists as it relates to
people of color and women?
Let me start with Mr. Van Alst.
Mr. Van Alst. Testing that has happened more recently,
looking at auto finance, has certainly been consistent with the
findings of other analysis. I am more familiar with the use of
large data sets to identify discrimination that has taken place
and the report that you referred to earlier from the National
Fair Housing Alliance, found similar results using testing.
I will say in the auto arena, testing can be and is a good
tool, but it is difficult, and in fact the National Fair
Housing Alliance did have difficulty in getting straight
information from dealers in order to make testing effective.
Chairman Green. Have you found that it is the markup that
becomes the problem, the discretionary mark-up?
Mr. Van Alst. I found that everything that is discretionary
at the dealer level becomes a problem. We had certainly seen
through litigation that these dealer interest-rate markups
which are in addition to the interest rates already set based
on risk pricing led to discrimination, and I want to say that
dealers are understandably defensive when you point this out,
and the fact that we see evidence of discrimination doesn't
mean that dealers are necessarily overtly wanting to
discriminate against races. I am sure, when you talk to
dealers, they don't want to do that but they have to quickly
size up someone and decide how far they can push them and what
we see from the data is that what winds up happening is they
use race to decide how far they can push someone in terms--
Chairman Green. Let me move to, Ms. Clarke, quickly. Ms.
Clarke, give me your thoughts on the dealer markups, and we are
talking about in addition to the pricing that has already taken
place in terms of the lending?
Ms. Clarke. So, matched-pair testing in the fair housing
context has been a bedrock tool for identifying when landlords
discriminate on the basis of race, ethnicity, or national
origin and it is absolutely a powerful tool that can be used to
identify when we are seeing potential discrimination rear its
head in the auto lending industry as well. The National Fair
Housing Alliance study that was released in 2018 did a very
good job of deploying matched-pair testers out in Virginia and
identified disparate treatment on the basis of race. Those
black consumers who were exploring buying a car and accessing a
loan were absolutely treated differently, they were given
different information about the cost of loans, different
information about the cost of the vehicle, different
information about the markup, and we would not have been able
to capture those differences in treatment unless we deployed in
a very carefully controlled setting trained--
Chairman Green. Ms. Clarke, I am going to--
Ms. Clarke. --testers.
Chairman Green. --have to ask you to wrap that one up and
let me ask you another question that relates to the methodology
used by the CFPB with surnames and geography to perform a
study.
Can you give us your opinion about that, please, in terms
of it being valid or not?
Ms. Clarke. In my view, these kinds of studies and tests
are one factor among many that we should look at in identifying
discrimination. We do these kinds of analyses in the voting
rights context, in the Title VII employment discrimination
context, and once you have conducted an analysis that suggests
you have identified discrimination, that is when you move
further, you depose witnesses, you subpoena documents and get
other evidence that might ultimately reveal and help you
conclude whether or not you have a lender engaged in unlawful
discrimination, so it is one important factor.
Chairman Green. Has any court invalidated the study that
the CFPB performed?
Ms. Clarke. I am not aware of any court that has
invalidated this study and I appreciate some of the questions
and concerns that have been raised but again this is just one
factor that should be further corroborated by testimony and
other documents; further analysis of data that may reveal
unlawful discrimination.
Chairman Green. Thank you.
I now recognize Ranking Member Barr for 5 minutes.
Mr. Barr. Thank you, Mr. Chairman.
And let me start with just making an observation, and maybe
it is just me, or maybe it is just central Kentucky in my
congressional district, and I certainly defer to the expertise
of the panel who have studied this issue with great intensity,
in terms of what you have seen, in terms of discrimination,
racial discrimination in auto lending but in my experience, and
again maybe this is just in my congressional district, I don't
know a single racist auto dealer, I don't. I have never ever
observed in my interaction with any auto dealer, a desire to
not sell a car.
And in arranging financing, my experience in actually
listening to my constituents of all races, is that auto dealers
want to arrange financing and get a car moved off their lot and
in the possession of their customers, regardless of race.
And what I would say also about the indirect lending model
is that contrary to what we have heard today in a lot of the
testimony, dealer-arranged financing helps, it doesn't hurt,
consumers and customers and it does so because the dealer has
the ability to have the scale and the purchasing power to
actually interact with banks in a way that the consumer cannot.
The dealer has the ability to bring volume to a bank and
arrange financing in a way that a cherry-picked customer cannot
and so what I would say is remember dealer-arranged financing
is a service, it is a service provided by the dealer that the
customer may choose to use or choose not to use and no one is
forced to use a dealer to arrange for financing, that is
something that we haven't heard in the testimony here today. A
car buyer opts, chooses to use dealer-assisted financing, he or
she as a result receives a significantly more convenient buying
experience and can achieve a lower interest rate.
Now, last Congress when we rolled back the CFPB's Indirect
Auto Financing Guidance, in no way did we amend the fair credit
Laws or hinder their enforcement. In fact, the National
Automobile Dealers Association encourages dealers to adopt a
robust DOJ-based Fair Credit Compliance Program and under this
program dealers are required to be able to demonstrate through
documentation any deviation in discount rates between
individuals which must be based on legitimate business reasons.
I just wanted to make that statement and I invite the panel
if they disagree with that, to talk about that in your
testimony later.
But at this point let me move on to insurance and I want to
first recognize my colleague from Michigan, the gentlelady from
Michigan, for justifiably expressing concern about high rates
in Michigan. And Mr. Rivera, to that point and that issue in
preparation for this hearing, I reviewed not only your
testimony but also your report and op-ed on Michigan auto
insurance rates that you released in March. After reading that
report, I thought you made a very compelling case for the
Michigan State Legislature to reconsider some of its policies,
but nowhere in your written testimony did you mention
Michigan's No-Fault Auto Insurance Mandate that is paired with
the only unlimited personal injury protection (PIP) requirement
in the country. Your report states that this No-Fault PIP
requirement currently accounts for 42 percent of the average
premiums paid by the Michigan driver.
On top of this, you state that Michigan does not impose a
medical fee schedule resulting in the average auto accident
claim in Michigan totaling over $75,000, which is more than 5
times the average of the next closest State. Why is that
information excluded from your testimony and don't you think
that may be why Michigan premiums are so high?
Mr. Rivera. Well, thank you for the excellent question. And
thank you for reading the brief. As you know, we attached the
brief to the written testimony and for the purposes of the
written piece, really wanted to focus on what is really one of
two issues: one is, why are rates so high just generally, and
that is around the medical cost State practices that we all
know so well; but then there is a second question, which is,
why do rates differ between people? And that is where we really
thought we had to incorporate this discussion around non-
driving factors for the simple fact that you could get charged
more if you lost your spouse, you could get charged more if you
live in a rural area, and for factors like that we wanted to
have a focus for the purposes of making sure that we also
answered the prompt of the title of the testimony.
Mr. Barr. Mr. Lynch, in my remaining time, why do insurance
companies use credit scores?
Mr. Lynch. Because they are very effective. They work and
they are very good at predicting how likely a person is to be
in an accident in the coming 6 months or a year.
Mr. Barr. Is it ever used as a single variable to determine
a rate or is it part of a larger algorithm?
Mr. Lynch. No. It is always part of a larger algorithm.
Mr. Barr. And can you explain how consumers' prices would
be effective, if insurers were not allowed to use that?
Mr. Lynch. Well, then, what would happen is that for some
people and by some measures most people their rates would go up
and for other people their rates would come down and it would
come to an average. In the State of Michigan, the average rate
would be twice the average in the typical State but what would
happen is that your drivers who present less risk would be in
essence overcharged and people who are at greater risk of being
in an accident would be undercharged.
Chairman Green. The gentleman's time has expired. The Chair
now yields to the Chair of the Full Committee, Chairwoman
Waters.
Chairwoman Waters. Thank you very much, Mr. Chairman.
Since 1991, academic studies have demonstrated that when
auto dealers have the discretion to mark up the interest rate
on auto loans, non-white borrowers are disproportionately
harmed. Nearly 2 decades ago, the National Consumer Law Center
brought several successful class actions that revealed racial
disparities in dealer markups of interest rates.
I would like to ask, I think it is Mr. Van Alst, to
describe this academic research and how prevalent such
discriminatory markups happen; are you familiar with the
research that was done?
Mr. Van Alst. Yes. We were co-counsel in 12 cases that were
litigated between 1998 and 2007. We analyzed millions of
transactions. We coded these transactions for race based upon
driver's license data. At the time we were involved in these
cases, 14 States collected race information for driver's
licenses and we were able to therefore code these transactions
by race. This is something that can't be done today. I know we
have had lots of discussion about data and lots of folks have
indicated an interest to have good and accurate data, working
on these problems but currently the Equal Credit Opportunity
Act prohibits the collection of race data in these transactions
and so we can't replicate today the same analysis that was done
at the time this litigation took place.
Chairwoman Waters. What year was this done?
Mr. Van Alst. This was between 1998 and 2007 and so that is
not only us but enforcement entities and States as well are
both prohibited from collecting this data and prohibited from
using that data because they don't have it, towards enforcement
and this is a great hurdle whether we talk about State
enforcement in this area or Federal enforcement, without the
data, without knowing what is happening, we are forced to rely
on--as has been pointed out--measures that are perhaps slightly
less accurate than if we had good data about the race of people
involved in these transactions.
Chairwoman Waters. Do you have any studies or information,
not polling data but stories that have been told by individuals
about what happened to them when they went to purchase a car?
Mr. Van Alst. I have reams of stories about abuses that
people suffer when they go to purchase a car both from the time
when I worked at Legal Services and since then when I have
dealt with attorneys across the country, however very few
consumers know that they have been discriminated against in
terms of financing. This is not something that you can see, you
can't tell that you were marked up 3 percent, your financing
was, and the next person wasn't marked up at all, consumers
have no way of knowing that this is happening to them, so I
hear stories about all sorts of other things but consumers can
never know that this is being done to them.
Chairwoman Waters. But there are many stories in the
African-American community about how they were treated when
they went to buy a car and now, some African-American consumers
will ask someone to go with them because of the way they have
been basically abused, they have been bullied, they have been
lied to, and so these stories are legendary about what happens
to African Americans and women when they are trying to purchase
a car.
And I know that the members of this committee, every member
of this committee has heard these stories about what happens
when women and people of color and African Americans go to
purchase a car. So I wanted to find out a little bit about that
study and perhaps what we need to do to keep proving, to keep
giving the information because it is not that this is not
happening, it is because the auto dealers have a lot of
influence in this Congress, and Members who believe it is their
responsibility to protect the automobile dealers and not the
consumers and so this is a very difficult issue.
You saw what happened before when it came before this
committee and you saw how they rolled out the lobbyists, how
they put the money into the campaigns, and you saw the results
coming out and so this is difficult work and we have to keep
doing it, we have to keep finding ways to get more information
and not just rely even on the stories that we hear oftentimes
but the fact that this has to change.
I yield back the balance of my time.
Chairman Green. The gentlelady yields back.
The Chair now recognizes the gentleman from Florida, Mr.
Posey, for 5 minutes.
Mr. Posey. Thank you, Mr. Chairman, and Ranking Member
Barr, for holding this hearing today. There is no place for
discrimination against any American citizens. Allowing
discrimination to persist would dishonor those who fought so
bravely to defend our nation and currently are online to do so,
we all abhor discrimination clearly.
For today's hearing I think we ought to follow the
principle of evidence-based decision-making. Evidence-based
decision-making encourages us to look beyond first impressions,
not for the purpose of dismissing concerns but to reach a
deeper understanding on why something is the way that it is and
that is what we must do to solve problems like we have before
us today. That is the spirit I believe we ought to have in
approaching today's hearing; we must collaborate to see the
full story with respect to auto insurance and markups of auto
insurance interest rates. Often, there is more going on than
first impressions might tell us.
Perhaps a solution is something different than calling the
usual cast of regulators and sending them forth. We would all
find it reasonable that a business seeking profits probably
shouldn't care about ethnicity, age, or gender of their
customers. Clearly, a business shouldn't make any more money by
merely charging more for certain groups and market economy with
competition we have in this country, ought to result in a
person taking his business elsewhere and for businesses
competing for this business to offer him a better deal than
someone who discriminates. Now, that is how we expect the
markets to work and our competition usually drives down prices
for everyone.
For the panelists, if the differences we see in the auto
insurance rates in the interest markups are solely due to
ethnic, age, or gender bias, why doesn't the marketing
competition drive these practices out of existence?
And we usually start from left to right, so let us start
from right and go back left today.
Mr. Lynch. That is your right?
Mr. Posey. Yes.
Mr. Lynch. Okay. So insurance companies--a lot of the
discussion today has involved the use of the word
``discretion,'' and once insurance companies have made their
determinations based upon the risks that they see and the data
that they observe year in, and year out, once those rates are
set for automobile insurance, the world of discretion ends;
there is no discretion left, the rate is what the rate is and
it is based upon the characteristics that any customer presents
and those and all of those have been linked to higher or lower
propensity to be in an accident and that is simply how
insurance is priced and how insurance is done and once that is
in place, in auto insurance there is no more discretion.
Mr. Posey. Okay. Thank you.
Mr. Rivera?
Mr. Rivera. Hello, thank you for the question. Some of the
factors used in auto insurance have been found to not be
correlated with risk. There are certainly non-driving factors
you want to consider; they need to be included for insurance
companies to have sound rates. A good example of this is
gender, the way in which it is treated has been found in
research to vary from company to company in which sometimes you
get a discount, and other times you get charged a little more.
It also varies by State and it is this inconsistent application
that could be potentially unfair for the consumer going from
one State or another to have their gender matter differently,
as one potential way in which risk might not be fair.
Another is the use of things like credit scores. I agree
with my colleague that credit scores are not correlated with
race but we have to ask the question, why people of color are
disproportionately represented in the ranks of Americans with
poor or no credit and it is not because they lack financial
skills, it is because of systemic, sometimes implicit
discrimination that happens elsewhere in the market that ends
up showing at things like credit scores.
So I would say well, I think there are compromise factors
looking State to State they have looked at it, there are
certainly some factors that deserve a little more scrutiny for
thinking about what their basis really is, and I think for
insurance companies themselves, that transparency is not always
available to consumers. It is often very hard to get
information about what factors they are using and one of the
biggest factors that can weaken a good free market is imperfect
information.
Mr. Posey. Thank you.
Ms. Clarke?
Ms. Clarke. The foreclosure crisis and resulting recession
resulted from us relying on the market frankly and from
insufficient oversight and regulation on banks that were
peddling sub-prime and predatory mortgage products to
consumers, many of them people of color. Likewise, in the auto
industry, we don't want to return to that era. We need strong
Federal oversight and regulation to ensure that consumers are
being treated fairly and equitably and most importantly to
ensure that practices like markups are not rearing their ugly
head.
Mr. Posey. Thank you.
Ms. Cross?
Ms. Cross. One reason perhaps that the market hasn't
corrected this so to speak is because a lot of times borrowers
with poor credit histories or in areas of other disadvantaged
situations know that they have no other option and that puts
them in a very vulnerable state when they go to buy a car and
to get financing, to be kind of at the will of creditors who
know that they are able to take advantage of that situation.
Mr. Posey. Okay.
Mr. Van Alst. Another reason that competition hasn't cured
these problems is that this is not a transparent and clear
marketplace; you have to actually spend hours at the dealership
to even find out what terms you will eventually be offered,
typically you have to have already gone through the sales
process back at the F&I Office before you can even find out
what sort of finance terms are going to be offered, so it is
much more difficult to do comparison shopping unless you are
prepared to spend days and days to try to go from one dealer to
another.
Mr. Posey. Thank you, Mr. Chairman.
Chairman Green. The Chair was quite liberal with the time;
the gentleman yields back.
The gentlewoman from Michigan, Ms. Tlaib, is recognized for
5 minutes.
Ms. Tlaib. Thank you, Mr. Chairman.
Thank you so much, Mr. Rivera, for being here. Would it
surprise you to know that a driver with a DUI and a good credit
score will pay less for auto insurance than a driver with no
DUI and a good driving history who has a decent credit score,
not so great?
Mr. Rivera. When I found out I was shocked, yes.
Ms. Tlaib. Tell us a little bit more about that? I want you
to tell people here, the non-driving factor, the use of a
credit score, a person who committed DUIs who has a really bad
driving history compared to somebody who doesn't have a great
credit score but for the fact that--and let me tell you I have
seen people's credit scores impacted by the fact they have
become a widow, that they are retired, I know a woman who
worked at Beaumont Hospital for 25 years, had been driving for
55 years, and when she retired, her car insurance went up $350,
and when she called, they said it was because her credit score
was impacted, however she is driving less, she is not getting
any tickets, so how is this legal? How is this possible?
Mr. Rivera. Yes. So some of the research has said that one
of the reasons why credit scores are a factor is it predicts
the likelihood of a claim but we really need to unpack that.
Why do folks with low credit scores need to make a claim? And
the answer to that is, think about the situation that gets you
to there in the first place; for many Americans, their credit
score is influenced by factors outside of their control, a
family emergency, loss of a spouse, getting behind because of
the high cost of college or education, and for those--
Ms. Tlaib. But Mr. Rivera, they are saying if somebody has
a low credit score, the likelihood of them committing a
fraudulent claim is higher, so they are saying because they are
poor, because they have a low credit score, the likelihood of
them committing a crime is higher, isn't that discrimination?
Mr. Rivera. Yes, I believe so. It disproportionately
impacts low-income, working-class families.
Ms. Tlaib. That is right.
So Mr. Lynch, there are two drivers, true fact, who can
talk to each other from across the street in their driveways,
they are the same age, they have the same driving history, the
same car, the same credit score, what I can't figure out is why
a driver who lives in Detroit on the side of Mack Avenue gets
quoted double the price for basic minimum coverage than a
driver who lives right across the street on Mack Avenue on the
Grosse Pointe Side?
Mr. Lynch, can you explain why it is determined by the auto
insurance industry that that side of the street pays $3,000
more per year than the driver in the Grosse Pointe area?
Mr. Lynch. That is because of the way that the territories
have been drawn and those--
Ms. Tlaib. But you are basing it on zip codes, right, not
driving history and driving record, say it, you are using--
Mr. Lynch. It is being--
Ms. Tlaib. --zip codes.
Mr. Lynch. --based upon the territory which is the zip,
the--
Ms. Tlaib. Zip codes.
Mr. Lynch. --codes are usually used to determine what the
territories are, those territory factors, the boundaries of
them, are being constantly reevaluated by insurers and in fact
one of the things that insurance companies are trying to get a
better handle on, is something called, I think it is called
geospatial coding which is the use of the exact longitude and
latitude to set rates so that some of those--
Ms. Tlaib. Mr. Lynch--
Mr. Lynch. --discrepancies--
Ms. Tlaib. We call that redlining. It is a discriminatory
practice to base it not solely on people's driving history. And
the non-driving factors are hurting families.
And I really do have a question for Mr. Rivera because I
have limited--Mr. Rivera, what research did you find in the
difference between the rates between zip codes? Because I know
according to the Consumer Federation of America, a zip code in
Detroit with an 8 percent white population adjacent to zip
codes with 85 percent white population pays 65 percent more in
auto insurance, is that correct?
Mr. Rivera. That is correct.
Ms. Tlaib. For instance, even though we are talking about
this being a white-black issue, and we have talked about this,
I don't see this as a white-black issue anymore, I am talking
to people and it is true, African Americans in my district pay
a lot more but what I am showing now is that 97 percent of
Michigan's zip codes pay unaffordable car insurance rates.
This has nothing to do with no-fault. These are non-driving
factors. They are using gender and Mr. Rivera, when you talked
about gender, I was a little taken aback, you are saying that
someone, a woman and a man, you are using that as a factor in
calculating rates, not where a person works, and you asked us
where we work and you calculate the length of the driving
between your home and your workplace, so why isn't that used?
Why are gender and people's marital status and their credit
score being used to calculate rates?
Mr. Rivera. Well, from my perspective, they shouldn't be.
They are being used because insurance companies think that
those folks will file more claims and they want to charge them
more and the unfortunate effect of this is that the people who
need the cheapest auto insurance the most, are the ones who get
charged more and those in relatively wealthy areas, relatively
wider areas who have relative privileges, get charged less,
despite the fact that they could afford it.
Ms. Tlaib. And lastly, Mr. Chairman, if I may, I did pass
out and ranked so you all can see this is not just a Michigan
issue, but car insurance rates are high risk especially with a
lot of our residents. The use of non-driving factors is really
putting more people into poverty and it is something that our
families are facing every single day. And so, I did pass out
the ranking from Florida to Kentucky to New York and Ohio.
So I hope my colleagues consider this as they look at the
bill that I have right now, that prohibits the use of credit
scoring in calculating car insurance rates.
Thank you, Mr. Chairman.
Chairman Green. Thank you. The gentlelady's time has
expired.
The Chair now recognizes the gentleman from Georgia, Mr.
Loudermilk, for 5 minutes.
Mr. Loudermilk. Thank you, Mr. Chairman.
I thank everyone on the panel for being here today. This is
an issue we need to address but it is an interesting issue, in
that most if not all of our States by law require drivers to
have some form of auto insurance, and as someone who has
recently been involved in a very bad accident, was hit by
someone who had no insurance, it is obvious to me why we do
require people to have insurance.
On the other hand, insurance is not a one-size-fits-all
thing, and what I found through my experience in life is when
you have a one-size-fits-all, it is only one very narrow
segment of a consumer base that it fits; everyone else is then
harmed in some way or the other because it doesn't fit where
they are and insurance is one of those areas that I see that
with one-size- fits-all, is generally going to raise the price
for everyone and when that price goes up, those who come from
low-income families, as I grew up, are harmed the most, and so
that is my concern of where we are going in all of this and my
serious concern over the proposed bill.
Mr. Lynch, I understand we do use credit ratings which,
from the information that I have derived, is a fairly accurate
way of--not the sole way but a way of helping to determine a
risk factor because insurance is all about risk. I remember
growing up that if you were a male, you were going to pay more
in car insurance up until you were 25-years-old; I don't know
if that is still the case. I remember when I turned 25, that
was a magic age of, now I get cheaper insurance, and it
happened, even though my wife, she was already you know, she
was a less risk her car, she paid a little less on it because I
guess statistics showed that men had a little heavier foot than
women did.
The point I have is--my understanding of the rates in
insurance are based on multiple risk factors because you do not
have a crystal ball, you cannot sit down and predict if someone
is going to have an accident at some time and is it going to be
their fault so you have to have tools and I know it has been
touched on already, but how does the credit rating apply in
helping to make those determinations of risk as you also use
other tools, how do they work together?
Mr. Lynch. It is a type of analysis that actually has
become a lot more sophisticated in recent years. One of the
things that actuaries have gotten really good at is
understanding how those individual rating factors interact and
overlap or miss each other and so they adjust rates for that,
so for example when you see the kind of a one-way analysis that
you have seen with gender rating in particular, where you take
six factors and hold them constant and then only change gender,
when you go from community to community, that does give you a
window but you can't project forward and extrapolate that
experience to all women who are drivers.
Mr. Loudermilk. Right.
Mr. Lynch. You can't do that because you haven't done
anything to take into account that interaction. I can also
state that all of these variables, all of them are constantly
being reassessed by insurance companies. Gender was one that
specifically insurance companies are currently looking very
closely at because we are starting to understand the nature of
gender identification in a very different way that we did even
10 years ago. And insurance companies have their eyes open, and
they see those things as they are happening. And so they are
working hard to make sure that their rating plans take that
into account.
And then as women have been driving more in recent years,
that relationship between men and women, which at one time was
thought to be exclusively because men have a heavier foot than
women, it actually is being shown to be at least in some of the
cases it appears to be just the number of miles being driven.
Mr. Loudermilk. Okay.
Mr. Lynch. The number of miles you are on the road tells
you how likely you are to be in an accident, which is kind of
a--
Mr. Loudermilk. Don't most States who have the predominant
regulatory impact on insurance require that you only use risk-
based factors in determining--
Mr. Lynch. Yes.
Mr. Loudermilk. Okay.
So quickly, Mr. Rivera, you revealed that there may be some
discrimination in the actual credit reporting which is not
directly effective on the insurance agency, shouldn't we focus
on that, not eliminating the insurance companies from using
something that is a tool, address the discrimination on the
credit report side not eliminate their ability to use a tool?
Mr. Rivera. I think it has to be examined because just
because something is a risk factor, it doesn't mean that the
reason for why it creates a risk factor is justifiable. In the
case of credit scores, it might be correlated with risk, but
you want to unpack it and I think as you know, I have kind of
talked to today, some of the reasons for why it can become a
risk factor are actually reasons that we may not want to
penalize when it comes to pricing, there are certain consumers.
Mr. Loudermilk. Thank you. I yield back.
Chairman Green. The time has expired.
The Chair now recognizes the gentlewoman from Ohio, Mrs.
Beatty, who is also the Chair of our Subcommittee on Diversity
and Inclusion. She is recognized for 5 minutes.
Mrs. Beatty. Thank you very much, Mr. Chairman.
And thank you to all of our witnesses here today.
I am not sure where I should start with this, after reading
everyone's testimony. Certainly, I associate myself with much
of everything that Congresswoman Tlaib has said.
You probably can tell by our tone that it is a subject that
we want to weigh in on very much because when you talk about
discrimination in any field, when you talk about disparities
that we should be able to change, when you cite information in
testimony and reports that oftentimes don't match up or you
highlight things that don't make sense, it puts me on pause of,
where do I start?
So Mr. Rivera, you are up first. In your report you cited
the findings by the Federal Insurance Office that nearly 19
million people live in zip codes where auto insurance is
unaffordable, 19 million people out of 327 million people,
meaning about 6 percent of the American people live in zip
codes with unaffordable insurance. Now, you also stated, if we
compare that with Michigan where you state 97 percent of the
people live in zip codes with unaffordable insurance, now, you
know, I am from Ohio, so I am not picking on you because it is
Michigan, I am just giving you back what you gave to us, this
to me seems like a Michigan problem. Why should we use
Michigan, with its deeply flawed system, as evidence that the
Federal Government needs to usurp State laws and change how
insurance rates are calculated, explain that to me?
Mr. Rivera. Of course. There are two questions there that I
will think through.
The first is that the question of jurisdiction is a
question that I will leave open to Congress and it is not the
subject of my expertise.
The second is, I can provide recommendations for what could
be done at any level of government. And I think Michigan is the
canary in the coal mine; I don't think it is alone. You see
rising insurance rates throughout the country and you see
working-class drivers struggling to pay rates. And a part of
that factor is the use of non-driving factors.
So as Congress considers the policy levers in front of it,
we have attempted to provide the best evidence for the case for
or against, looking at those factors.
Mrs. Beatty. Okay. Mr. Van Alst, let me just say, any time
we are using zip codes, that poses a problem to me. People
should not be judged, in my opinion, by their zip codes, their
addresses, and where they live, but there was a bill that came
up in our 114th Congress where we dealt with this, and it was a
system that was used, the Bayesian Improved Surname Geocoding
(BISG) methodology, and it used race and zip codes, so let me
ask you, between 2003 and 2007, the National Consumer Law
Center settled for more than $100 million on related class-
action suits so I am going to ask you, did you use the BISG
Methodology in that suit and if not, what did you use?
And part of the reason, it was interesting as I was
reviewing some of the testimonies here, I plugged in my surname
and everything they asked me for, and it came up that there was
an 80.24 percent chance that I was white. Now, clearly, saying
there was an 80 percent chance that I was white by that zip
code, the system is flawed when you do that, and conversely for
a whole lot of people it would come up and actually maybe they
are poor and maybe that they do live in an area and it will
work against them and so I am curious, what system do you use?
Because I am going to plug my name and address in and see what
happens.
Mr. Van Alst. In our litigation, what we actually did was
pull race data that folks reported themselves to their State
DMV or RMV when they got their driver's license. At the time we
were doing our litigation, there were 14 States in the U.S.
that collected race data, and because people move around, we
were able to use that data to get statistically significant
results in a number of States beyond those 14. That is no
longer the case, those States no longer collect race data.
There are issues with using surname and geocoding as a proxy
for race. I think the CFPB and others certainly agree that
there are issues with that unfortunately because the Equal
Credit Opportunity--
Mrs. Beatty. I am going to have to stop because my time is
running out, and I just want to quickly say, it works two ways
because it could not only hurt African Americans but also
benefit folks who might not be a minority, who live in a
minority neighborhood.
Thank you, Mr. Chairman. And I know my time is up.
Chairman Green. The gentlelady's time has expired.
The gentleman from Ohio, Mr. Davidson, is recognized for 5
minutes.
Mr. Davidson. Thank you, Mr. Chairman.
And I thank our witnesses.
And following my colleague from Ohio, I have a similar
observation about the difference between Ohio and Michigan, and
we are not talking football but with insurance. If you look at
the consequences. Ohio is less than half the cost for
comparable coverage, and we are here talking about laws and
public policy because laws and public policy have consequences
and you can see clear differences in the policy requirements to
write a policy in Michigan versus to write a policy in Ohio and
that is embedded in the price.
I have appreciated the education in preparation for this
hearing and in the dialogue here about other factors that are
going into the pricing and I guess some differences of opinion
about how those factors are affecting the price.
But Mr. Rivera, at the core, when you write a policy in
Detroit, and you write a policy in Cleveland, Ohio, they are
demographically very similar, so isn't the core price
difference between the two States the content of the policy?
Mr. Rivera. Well, certainly State-by-State trends impact
the cost of auto insurance but for drivers in both Toledo and
Detroit, their credit score or their gender can also impact
their price, which is something that they share in common.
Mr. Davidson. Okay. So there are factors that can influence
it.
But Mr. Lynch, as you look at these generic things like
sex, gender, zip code, things like that that are not
personalized, when you look at the rate differences on
insurance, there are some people who are advocating for,
everybody gets a policy, you get a policy and you get a policy
and you get a policy, and it doesn't really matter what your
driving records are like and we just want to average-price it,
so everybody shares the risk which produces more risk in the
pool and no one could be denied the ability to buy insurance or
even have to pay a higher price.
Why would we do that? Why wouldn't we say, you are a safe
driver so you will pay less than somebody who is not a safe
driver?
If someone has 5 speeding tickets and a DUI, isn't it
rational that this person would pay more then somebody who has
never had a moving violation?
Mr. Lynch. Well, driving record is used to evaluate whether
a person is a good risk. It is one variable, but it is not the
best predictor of risk, and that is a simple fact.
I did a simple one-off analysis about the percentage of
cars that were in an accident and the percentage of people who
get a moving violation in a year. And I figured out that about
75 percent of Americans probably got a discount for good
driving because they haven't had either of those happen in the
last 3 years. So that would be 3 out of 4 people in this room
getting that discount and there is a lot more to whether you
are going to be likely to be in an accident than that.
I have talked to some people, and that is actually kind of
reflective of what the industry really is. The strongest
predictor, the absolute strongest predictor is the number of
cars in a territory, because the more cars there are per square
mile, the more likely they are to bump into each other. And I
live in New Jersey where we have about the highest rates in the
nation and we have the highest vehicle density in the nation
and that is no coincidence.
Mr. Davidson. Right. So when you do that, even though you
have all these other factors for the individual, you inherently
have to come back to something like zip code, something like
who drives through this area here and what kind of vehicle, the
price for insurance for certain types of vehicles, that
influences what kind of car you drive, that also affects your
rate, correct?
Mr. Lynch. Depending on the package of coverages of auto
insurance, that can make a significant difference. Obviously,
it costs more to have first-party coverage on, say, a $50,000
car than it does on a car that you got secondhand for $1,000 or
$2,000 or $4,000.
Mr. Davidson. Correct. And then my understanding is when
you look at data analytics and of the panelists it seems that
your organization would be in the best position to offer
perspective on the data that is collected. Data is increasingly
monetized. And I assume many of your companies are purchasing
and acquiring data that allows for highly personalized pricing
based off of a whole variety of data analytics.
Can you comment on that please?
Mr. Lynch. Well, yes. Data is critical and data is very
expensive. It is very expensive to prepare the dataset, it is
very expensive to preserve it. We did some work in the State of
Florida and just cleaned up a small database of only about
300,000 records which is quite small and only about 10
variables and it cost us $15,000 for about 3-months' worth of
work at the Triple-I.
It is very expensive to maintain a dataset, and companies
don't do that unless they can get actionable and important
information from it. And that is why we developed the sets of
rating factors that we developed; if it wasn't necessary to do
that, in all likelihood it wouldn't happen.
Mr. Davidson. Thank you.
My time has expired, and I yield back.
Chairman Green. The gentleman's time has expired.
We will now recognize the gentlewoman from Texas, Ms.
Garcia, for 5 minutes.
Ms. Garcia of Texas. Thank you, Mr. Chairman. And thank you
for putting this hearing together. I think it is a very
important topic and I know that as a former Legal Aid lawyer in
the consumer section, I certainly understand a lot of the
issues that face particularly a lot of working-class people in
my district, and it is sad to note that these issues were there
many years ago and they are still here today.
So thank you to all the panel for being here because this
is something that directly impacts so many of us in and around
Texas.
But Mr. Chairman, I know that my colleague from Michigan
has followed this issue because she is after all from the place
where the cars are built, so I yield the rest of my time to my
colleague from Michigan, Ms. Tlaib.
Ms. Tlaib. Thank you so much.
So Mr. Lynch, why does marital status have anything to do
with somebody's driving history or driving record?
Mr. Lynch. It is one of many factors that insurance
companies have looked at, in that case, over the course of
decades and determined that in certain conditions and in
combination with other factors, it can make a difference as to
how likely a person is to be in an accident.
Ms. Tlaib. So Mr. Rivera, one of the things that I talked
about is obviously the use of credit scores and the fact that I
think a lot of my colleagues on both sides are agreeing that
there is some flawed system to credit scoring, and I appreciate
them saying that.
I will tell you a story about somebody in my district who,
at a very young age, went and served our country, and came
back, and of course didn't build up their credit, through no
fault of their own, and is trying to build up their credit as
they come back after serving, after driving Humvees in Iraq.
And they come here and they try to get car insurance and their
credit score is being used as a factor--not where they live,
the distance between their job and their workplace or any other
driving history because they have been driving since they were
16.
Again, I really want to unpack this idea around the use of
non-driving factors because I do think even if we fix whatever
other issues are going on, there are layers of issues when it
comes to insurance coverage on home and auto but this use of
non-driving factors, to me, is a really dangerous loophole in
that we on the Federal level have a responsibility to push back
against especially corporations using these factors because
they are a factor to get around obviously the accountability of
making sure it is fair and just for everyone.
And as a woman, as soon as I am divorced, my credit score
drops, even though I am still making the same amount of money--
it just drops. The use of credit scores to me is extremely
dangerous.
And I want Mr. Rivera to really dive in and talk about this
unpacking, around the use of credit scoring.
Mr. Rivera. Yes. Well, in many instances it can be
egregious, particularly when you think about, a credit score is
not just a reflection of your financial acumen, it is a
question of what opportunity you have in the market. And in
many hearings that I have been to before this very committee,
there is rampant evidence of discrimination and a whole host of
markets that lead one to have a bad credit score.
I will give you one example of something that is just down
the block from me, there is something called L.A. Insurance.
They used to sell 7-day insurance, it was a way of charging you
an extremely expensive package just so you can meet your
obligations to this State and then when the State took action
against 7-day insurance, they started selling 6-month
insurance. And if you called them, they said hey--
Ms. Tlaib. Thirteen days, too.
Mr. Rivera. Thirteen days. And if you called them and you
got on the phone with them, like I did, you would ask, hey, do
I really need to have this for 6 months? And they kind of say,
no, cancel it after this, once you send us the check.
So in many ways, minority communities, low-income
communities, just get up-charged every step of the way before
they even get to the auto insurance policy and so it is only
salt in the wound when the credit score is used again to
determine their rate.
Ms. Tlaib. So Mr. Lynch by and large, the insurance
industry has never admitted that communities of color actually
pay more for their car insurance, in fact they often become
downright defensive about it. According to the balance in 2014,
the National Association of Mutual Insurance Companies sent a
letter--and I have it here and I would like to submit it for
the record.
The Federal Insurance Office insinuated that people of
color can afford to pay more for car insurance because--wait
for it--they spend money on their pets, toys, alcohol, tobacco,
and recording equipment. Is that true?
Mr. Lynch. What are you asking?
Ms. Tlaib. Do you know about this letter?
Mr. Lynch. I had nothing to do with composing that letter.
But that letter does exist. And the minute I saw it, I thought,
what could you possibly be thinking, that is not the--
Ms. Tlaib. But doesn't that--
Mr. Lynch. --way--
Ms. Tlaib. --already ensure--
Mr. Lynch. --the world operates.
Ms. Tlaib. And I am sorry, Mr. Chairman, doesn't that
already ensure they are using discriminatory--they are thinking
of my people of color, in America, in this way, that they
would, to use that as a basis.
Mr. Lynch. I get where you are coming from, I really do
because when I saw the hole it put in your stomach, it put it
in mine as well.
But I can tell you that the insurance industry doesn't
operate that way and that was just an unfortunate and gross
exception to the way that the industry normally operates. And
you know what? We had nothing to do with that statement but I
personally and sincerely apologize that any person here was
subjected to that kind of thinking.
Ms. Tlaib. Well, Mr. Lynch, I--
Chairman Green. The gentlewoman's--
Ms. Tlaib. --appreciate that you acknowledge that.
Chairman Green. --time has expired. But please--
Ms. Tlaib. I do ask, Mr. Chairman, unanimous consent to
insert for the record the letter--
Chairman Green. It will be admitted, as well as your other
document styled, ``Auto Insurance Rate Oversight and Reform
Subcommittee Members State by State.'' Do you desire to have
that in the record?
Ms. Tlaib. Thank you, yes.
Chairman Green. Without objection, it is so ordered.
The Chair will now recognize the gentleman from Tennessee,
Mr. Rose, for 5 minutes.
Mr. Rose. Thank you, Chairman Green, for calling this
hearing. And I appreciate the opportunity to hear from the
witnesses today.
I understand my colleagues' concerns about the high prices
in Michigan and concern that those prices may be impacted by
certain demographics, by non-driving factors like income level,
but Cleveland and Detroit are fairly similar in terms of
demographics and income level yet Cleveland has dramatically
lower insurance premium rates. According to Mr. Rivera's
report, in Cleveland the average annual insurance premium is
$1,277, while in Detroit the average premium is $5,414.
Mr. Lynch, can the conditions that you have described in
Michigan such as the no-fault insurance law partly explain the
difference in insurance rates between Cleveland and Detroit?
Mr. Lynch. That is an enormous part of the difference. No-
fault automobile insurance--when actuaries look at all the
different States, they look at the State of Michigan completely
separate from the rest of the country because the laws there
are drawn differently for auto insurance than they are anywhere
else, and that is just a statement of a projective fact, it is
not a value judgment. It is the most generous system in terms
of claim payments.
For a no-fault auto insurance claim, the limit on payments
is infinity, it can be $5 million, it can be $10 million, it
can be $20 million. And there are claims that come through of
that size.
In other States where no-fault exists, and it doesn't exist
in most States, but where no-fault does exist, typically the
limit is somewhere between $10,000 and $15,000, so when that
$10 million claim comes through, the auto insurer pays the
$10,000 or whatever their limit is and then it moves over into
the health insurance system.
But in Michigan, especially if you are dealing with
Medicare or Medicaid, those types of insurance have any other
insurance pay first, so if a 65-year-old was involved in a
terrible accident in Michigan, they are going to get coverage
first from the no-fault policy and it is going to pay and pay
and pay forever and then they will never touch the Medicare.
What that means is that insurance is a cost-plus product.
Insurers estimate what the cost of claims is going to be and
then they add in provisions to cover agents' commissions and
taxes and licenses and fees and a reasonable provision for
profit and when you do that, when you have an infinite limit,
you know you are going to have a higher rate than you have in a
State like Ohio where I don't believe it is a no-fault State.
And I believe on liability coverages, the minimum limit is
around $35,000 to $60,000.
So the difference between a $60,000 claim and a $10 million
claim is going to have a big influence on how much money every
person in the State pays regardless of how that rate is arrived
at.
Mr. Rose. Thank you.
Before coming to Congress, I was a private businessman, and
also served briefly as Tennessee's Commissioner of Agriculture.
I tend to think that government and regulation work best the
closer they are to the parties being governed and regulated.
The insurance industry is one of the few success stories in
that it hasn't been swallowed whole by Washington.
We have been regulating insurance at the State level for
over 150 years, and it is a system that works for consumers in
terms of accessibility and affordability. Members from both
parties seem to agree on this. Even when crafting the Dodd-
Frank Act and creating the CFPB, Democrats on this very
committee stipulated that the CFPB was not an insurance
regulator, they didn't want to supersede State-based insurance
laws and commissioners.
Like them, I am opposed to any potential overreach by
Congress that diminishes a State's right to regulate insurance.
I believe H.R. 1756 represents such an encroachment by
Washington. Of all 50 States, only 3 have decided to prohibit
the use of credit-scoring data in auto insurance underwriting:
California; Massachusetts; and Hawaii. Now, I might disagree
with their decisions because I think that data helps better
price the product for consumers but that is the decision those
State regulators have made and legislatures and government
legislators and governors have made and I respect it.
Tennessee and Michigan or any of the other 45 States could
make the same decision, but it is their decision not ours, and
I hope it remains that way. Thank you.
And I yield back.
Chairman Green. The gentleman's time has expired.
The Chair now recognizes the gentleman from New York, Mr.
Zeldin, for 5 minutes.
Mr. Zeldin. Thank you, Mr. Chairman.
I represent a district on Long Island in the State of New
York. It is very difficult there, as it is in many other parts
of the country, to get around without a car, whether it be to
try to get to school or to try to get to work.
Access to affordable financing and insurance is what helps
them have that opportunity to have a car that can get them to
work or to school. This isn't a wonky policy debate that we are
having here; it really impacts each and every one of their
lives very personally.
In real life, absent a government takeover of the lending
market, you always have divergent auto lending rates for
different borrowers based on creditworthiness, the term of the
loan, the price of the car, and the difference between State
laws and regulations. Now more than ever, consumers can shop
around, compare rates, and get the best deal.
It is so critical and it has been said over the course of
the hearing today that any discrimination related to race,
gender, or ethnicity is entirely unacceptable. Extorting honest
lenders and using spurious statistics to justify those attacks
that some of what we are getting into here during this this
hearing could hurt the very people we are supposed to be
helping so it is very important to have the best possible data
when reaching our conclusions that we are talking about.
Using questionable disparate-impacted data means no actual
discrimination has to be proven or occur for what could be a
politically motivated lawsuit, it could be a bureaucratic
attack to shut down an honest lender or an auto dealer.
Meanwhile, rates go up and access to credit goes down and
consumers, especially low-income ones, will suffer. When it
comes to flawed mandates on auto insurance, we have also had
State policies that I briefly mentioned earlier, that have led
to rates skyrocketing, so any attempt to do that at the Federal
level could be very problematic.
My question first, for Mr. Lynch is, we have been talking
about the State of Michigan a lot today and that is good. The
State of Michigan mandates unlimited personal injury protection
(PIP) and no-fault auto insurance. There are people at home who
don't live in the State of Michigan, and they are listening to
today's hearing. So, what does that mean? Can you explain it to
them? And do any other States in the country do that?
Mr. Lynch. Yes. They are about--and unfortunately, I didn't
prep myself on that exact question but there are about a dozen
States that have some form of no-fault automobile insurance.
The idea of no-fault is that it kind of usurps the idea of
liability and claims. A typical claim--we always think, who is
at fault in the accident, and whoeveris at fault pays in the
accident, but in States like Michigan, the alternative for
medical injuries is no-fault insurance so it doesn't matter if
you are in an accident and you are injured in the accident, it
doesn't matter if you are at fault or not at fault, the
insurance responds and pays so that that is the difference
between no-fault and a typical tort system, which I believe is
the case in Ohio, which is the other State that seems to have
come up in a number of comparisons.
Mr. Zeldin. The average cost of an automobile accident
insurance claim in Detroit in 2017 was $51,000. Is that normal?
Mr. Lynch. I would guess it is normal for Detroit but it is
not normal for the rest of the country.
Mr. Zeldin. Can you explain, I guess tied to the first
question, how that mandate impacts the rates?
Mr. Lynch. Well, what happens is no-fault is not the cause
of that high rate. The actual cause is the fact that the no-
fault is unlimited, so when you say a $50,000 claim, that is
obviously an agglomeration of some small claims and some
medium-sized claims and some large claims, and in Michigan,
because of the no-fault law, the large claims can get really,
really large, in fact there is an entire insurance entity that
is ultimately responsible for claims that exceed I believe
$550,000, no-fault claims and that is above what virtually any
personal automobile insurance policy in the United States is,
except for in Michigan.
Mr. Zeldin. Mr. Rivera, your report got into--and I guess
this question is for you and maybe Mr. Lynch but we only have a
few seconds--a whole lot of different reasons why the Michigan
rate in the State is so high. Can you speak to what that would
do for the rest of the country if the Michigan model was used
elsewhere around the country as far as what, in your report
causes the high rates?
Mr. Rivera. I would hate to extrapolate given that there
are vast differences State by State but I do believe that the
research cited by Mr. Lynch on this question of personal injury
protection claims is worth considering as was in the brief I
think, they play a part in averages, they can explain
differences between people, which I think is the focus.
Chairman Green. The gentleman's time has expired.
The Chair recognizes the gentleman from Wisconsin, Mr.
Steil, for 5 minutes.
Mr. Steil. Thank you very much. And Mr. Chairman, thank you
for holding today's hearing on what is a really important
topic. There is no place for discrimination in our system
across the board and I think we are identifying that here
today.
I also want to talk about the high rates of insurance and
where, as policy folks, we can dive in to try to drive the cost
of insurance down for everyone so everyone could benefit. I
think the State-based insurance regulations allow us to compare
how different policies work and apply those lessons to other
States. We have come to observe these policy decisions yield
sometimes bad outcomes for customers.
I am from the State of Wisconsin, which actually has the
second lowest insurance rate in the nation, averaging $951. We
share a border with Michigan so snow in Wisconsin, snow in
Michigan, sunny day in Wisconsin, sunny day in Michigan. And
you see probably about the most divergent of pricing, you see
one of the highest at $2,600 a month--well over twice the cost
for a car to be insured in Michigan, directly opposite the line
of a car to be insured in Wisconsin.
And so, Mr. Lynch, could you comment on what Wisconsin is
doing right in keeping these costs down?
Mr. Lynch. Well, I wouldn't characterize personally, and in
my position with a non-partisan organization, I wouldn't
characterize it as right or wrong but I would characterize it.
I can speak to the differences--
Mr. Steil. What is causing that?
Mr. Lynch. As I said, in Michigan you have no-fault
automobile insurance with no limit to the policy. And if you
have a $10 million claim, that is a dollar on every person in
the State of Michigan, give or take.
A comparable claim in Wisconsin would be, say, $60,000,
which is--how many people are there in Wisconsin? Sixty
thousand divided by however many people there are that is what,
like a dime of policy and those things add up over time so I
think that is probably the biggest driver.
I can tell you that to my knowledge, credit scoring is
regulated in 40 States, it is banned in 2 or 3 but credit
scoring is not the reason that rates are higher in Michigan or
lower in Wisconsin, it is--
Mr. Steil. It is interesting--
Mr. Lynch. And I want to say one other thing--
Mr. Steil. I am going to reclaim my time. I appreciate--
Mr. Lynch. Sure.
Mr. Steil. But we are so limited. I appreciate that take.
Mr. Chairman, I would like to insert in the record a letter
from the American Property Casualty Insurance Association.
Chairman Green. Without objection, it is so ordered.
Mr. Steil. And what it does is, it identifies and
highlights some of these policy areas that we look at to
ultimately drive down the cost of insurance and make it
affordable for folks living both in Wisconsin and across the
United States.
When we look at the importance of risk-based pricing and
doing that--I want to just go across the panel, if I can and
just ask, if you believe in risk-based pricing because it seems
like on some of our discussion today maybe that is or maybe
that is not the case and so just to go across.
Mr. Van Alst, do you believe in risk-based pricing on car
insurance?
Mr. Van Alst. For car insurance, yes.
Mr. Steil. Ms. Cross?
Ms. Cross. I defer to my fellow panelists, as I do not
focus on insurance.
Mr. Steil. All right.
Ms. Clarke?
Ms. Clarke. Yes. But but the devil is in the details. And
it----
Mr. Steil. Okay. But risk-based pricing is--
Ms. Clarke. Yes.
Mr. Steil. Fair enough.
Mr. Rivera?
Mr. Rivera. Risk-based pricing that doesn't discriminate on
the basis of gender and other factors that are not proxies for
income.
Mr. Steil. Understood, the risk-based pricing at its core
is an important aspect.
Mr. Lynch?
Mr. Lynch. I would be consistent with the State laws in
every State in the United States and say yes, risk-based
pricing is an appropriate way to price automobile insurance.
Mr. Steil. Thank you.
Going back to you, Mr. Lynch, as we look at insurance-based
pricing, do you believe that non-driving related factors are
predictive of driving risk?
Mr. Lynch. Well clearly, they are, that is why they are
used.
Mr. Steil. And can you maybe describe for us the process
that insurance companies are using to identify and evaluate
these risks?
Mr. Lynch. Well, when you price insurance, you use a two-
step process and the first step is that you estimate what the
average rate is going to be for the average consumer in
wherever your book of business is, let us say it is the State
of Michigan. And then after that you go through a process and
you identify through actuarial analysis of your data,
supplemented by data from other companies sometimes that are
outside of the insurance industry, and then that is how you
determine based upon the risks that you find that correlates
strongly with the likelihood of being in an accident and that
is how you come up with rating factors to adjust your rate come
to a final rate.
Mr. Steil. Thank you very much.
I yield back my time.
Chairman Green. The gentleman's time has expired.
The gentleman from North Carolina, Mr. Budd, is recognized
for 5 minutes.
Mr. Budd. Thank you, Mr. Chairman, for letting me sit in on
this hearing.
And I want to thank the witnesses as well.
It is not often that we have hearings about the insurance
industry in the U.S. Congress, and that is because we have a
State-based system that has been working well for over 150
years, so I believe that North Carolina insurers should answer
to Raleigh and not to Washington, D.C., so again these are
rare.
Mr. Lynch, I have reviewed the Insurance Research Council's
April 2019 Report on Auto Insurance Affordability in Michigan
and I would like to ask permission to enter this to the record,
Mr. Chairman, if that is okay?
Chairman Green. Without objection, it is so ordered.
Mr. Budd. Thank you, Mr. Chairman.
I want to make sure that I have the facts right. How many
States, including Michigan, allow for the use of credit-scoring
data in auto insurance underwriting, Mr. Lynch?
Mr. Lynch. I believe that number is 47.
Mr. Budd. Okay, 47. So it strikes me as fair to say that
Michigan is not unique in allowing for the use of this
predictive-scoring data, so how is Michigan unique?
Mr. Lynch. As I said before, the no-fault automobile
insurance system and the unlimited no-fault makes it different
from every other State, the unlimited nature of it is itself
unique.
Mr. Budd. So this IRC Report states that the average cost
of a claim for an auto accident in Detroit is $51,000 on
average per accident and the average cost of auto insurance
coverage in the area is $5,400 a year. Now, I have two teenage
drivers in a home that I insure on one policy and it is less
than that a year, in North Carolina, so how much of an outlier
are these figures when compared with other States like North
Carolina and what is to blame for the high cost of these
figures?
Mr. Lynch. Well, this is something that I think I have
answered once or twice but it never hurts to try to make it a
little clearer, when you have unlimited claims, when your claim
can be any size especially in the United States where health
insurance is so expensive, you can get claims where people
suffer tremendous injuries, and in Michigan if it is in an
automobile accident, not in any other kind of accident but if
it is in an automobile accident, then the automobile insurance
system as a whole has to bear that cost and that cost ends up
being directly reflected in the rates the consumers pay.
Mr. Budd. So do you agree that State-based insurance
legislators and regulators in Michigan can best solve this
problem?
Mr. Lynch. I work for an organization that doesn't make
public policy recommendations and lobby so I can't really
answer that. I can say that I have testified in the State of
Michigan as they explore ways to alleviate this issue and that
at the State level, they are very aware of it.
Mr. Budd. Understood, and thank you, Mr. Lynch.
I agree, and I think we have identified the cost of sky-
high auto insurance rates in Detroit and who can fix the
problem. I see no reason for Congress to supersede, in my case
North Carolina, in regulating my State's insurance market and I
also see no reason why my constituents should be forced to
subsidize Michigan or any other State for their seriously
flawed State insurance laws.
With that, I sincerely want to thank Chairman Green for
letting me join today's discussion.
And I yield back my time. Thank you.
Chairman Green. The gentleman yields back.
Without objection, the Chair now recognizes Ranking Member
Barr for an additional 5 minutes.
Mr. Barr. Thank you once again, Mr. Chairman, for holding
this hearing. And once again, I applaud you for your work in
Congress and before Congress in combating invidious
discrimination.
And as Members on both sides of the aisle have expressed
today, race discrimination, any kind of discrimination has no
place in our society, certainly not in auto lending, certainly
not in insurance or any industry whatsoever.
I think what a lot of Members have expressed today and some
of the witnesses as well is that we all want to get at
discrimination, stop it, prevent it, but we also want to make
sure that we don't eliminate risk-based pricing so that every
good driver in America, and most people are good drivers, are
not punished because they are not credited for their positive
driving records, and I think it gets to this idea of
socializing risk versus pricing insurance based on risk.
Let me ask Mr. Lynch one kind of final question to
summarize what we have been discussing today and that is, would
elimination of insurance credit-scores undermine the risk-based
pricing model?
Mr. Lynch. Well, to the degree that you restrict the
ability to use proven predictors of accident rates, you are
going to have a less robust model, it is going to get weaker
and that would be regardless of the variable that you were
deciding to restrict.
Mr. Barr. And let us really get at the core issue here, the
core issue is that some of the witnesses on the panel are
making the argument, as I perceive it, that credit scores are a
proxy for race. Do you agree with that or not?
Mr. Lynch. Well, no. They are not.
Mr. Barr. And tell me why you disagree with the other
witnesses on that point?
Mr. Lynch. Oh, well, when we look at insurance, we are told
what is fair and you--what you have to do is create a fair rate
and a fair rate is one, as I said in my remarks, that is
neither too high nor too low nor overcharges or undercharges a
risk that presents themselves with a certain known risk
characteristics, and all of that of course is silent as it
should be to issues of race and income, so insurance companies
do follow those laws and so that is kind of where I come to my
conclusion.
Mr. Barr. If we eliminated credit scores completely from
the underwriting of insurance, would an African American with a
pristine driving record be subject to a higher premium?
Mr. Lynch. I have no way to answer that question because
the industry does not gather information based upon race so I
can't say.
Mr. Barr. Well, forget the race, would drivers in general
with good driving records, would they be subjected to higher
premiums as a result of elimination of the use of credit
scoring in underwriting premiums?
Mr. Lynch. Well, most drivers have good driving records and
the people who have good credit scores and good driving records
and are presenting less risk to the insurance company would end
up overpaying.
Mr. Barr. Okay. Without objection, Mr. Chairman, I would
like to submit several items to the record.
The first is the Charles River Report on Fair Lending.
The second is a Report on Auto Insurance Affordability and
Cost Drivers in Michigan.
The third is a letter to you and to me from the National
Association of Mutual Insurance Companies, the Independent
Insurance Agents and Brokers, the National Association of
Professional Insurance Agents, and the American Property
Casualty Insurance Association.
And the fourth is a statement by the National Association
of Mutual Insurance Companies.
Chairman Green. Without objection, it is so ordered.
Mr. Barr. And with that, Mr. Chairman, I appreciate once
again, your leadership in holding this hearing.
And I yield back.
Chairman Green. Thank you.
The Chair now yields 5 minutes to himself.
And I thank the Members, all of whom have said they are
very much interested in making sure that we do not have
invidious discrimination.
Let us talk for just a moment about the indirect auto
lenders and how they work with the dealers, wherein the dealers
are acting as agents to a certain extent of the lenders and
once a price has been set for the purchase of a car with the
indirect auto lender, the dealer has the option to mark up the
interest rate and to do so without any rules or regulations for
the most part and actually the dealer does it at his own
discretion.
Do you agree that this is the case, Ms. Clarke?
Ms. Clarke. That is indeed the case. It is a widespread
practice.
Chairman Green. I have to move to the next person.
Ms. Cross, do you agree?
Ms. Cross. Yes. I agree.
Chairman Green. And Mr. Van Alst?
Mr. Van Alst. Yes.
Chairman Green. Okay. So we agree that the dealers can mark
up within their discretion the final interest rate.
Now, let me ask this of you, Ms. Clarke. Between 2013 and
2016, the CFPB brought enforcement actions against four
indirect auto lenders for violating the Equal Credit
Opportunity Act by authorizing and incentivizing discretionary
dealer interest rates. These markups resulted in non-white
borrowers paying higher interest rates than non-Hispanic white
borrowers. These actions garnered $104 million in restitution
for borrowers.
Under Director Mulvaney and Director Kraninger, however,
the CFPB has not taken any public Fair Lending enforcement
action against an indirect auto lender or any lender at all.
What are the consequences of the CFPB's lack of enforcement
of Fair Lending Laws in the context of auto lending?
Let us start with you, Ms. Clarke, please. What are the
consequences of the lack of enforcement?
Ms. Clarke. We are implicitly sending a green light to
dealers and lenders across the country that this kind of
discriminatory lending practice is okay. And by rolling back--
rescinding the 2013 CFPB Guidance we have seen lenders and
dealers actually abandoned efforts and proactive steps that
they were taking to reduce and eliminate the incentive for
dealers to engage in those markups.
There are a lot of lenders who are imposing a flat rate
which completely removed the incentive for dealers to markup
loan interest rates so we are seeing the resurgence of
discrimination as we see the Federal Government retreating from
this space.
Chairman Green. What is a possible solution? And I will
start with whomever would like to give me the first answer.
Mr. Van Alst. I can think of two.
One, is to go ahead and prohibit this discretionary
increase in the interest rate. There are many other methods
that can be used to compensate dealers for the time or effort
they spend trying to arrange financing, such as a flat rate.
Two, data collection, as we have discussed already today--
without accurate and good data, we can't know what is going on.
And currently, the Equal Credit Opportunity Act prohibits
collection of race data in these transactions unlike the
mortgage market. So it is very important that we gain that data
to know what is happening.
Chairman Green. Would simply letting the buyer know that
this markup exists be a beneficial disclosure?
Mr. Van Alst. We have found that throughout the auto sale
and finance process, disclosures can often be really
ineffective. Dealers who do this on a regular basis are very
good at getting consumers to sign things, disclosing things,
while they are covering up with one hand or turning the
consumers' attention elsewhere, simply disclosing this won't
fix the problem and in fact as we pointed out already,
consumers have to go through a long, arduous process to ever
get to the point where they had have something like that
disclosed and you can't do that.
Chairman Green. Let me move on to Ms. Cross. Ms. Cross, do
you want to add something?
Ms. Cross. Yes. One of the big things that you see happen
is a lot of predatory tactics that disclosure won't necessarily
fix 100 percent. Yo-yo financing is an abusive tactic where a
consumer is given the information about their loan and they
think it is a final deal. And then later a lender can call
back--days or weeks later, the dealership will call back and
say, ``Oh I am sorry, something went wrong with the financing.
And we need to renegotiate and charge you a higher interest
rate.''
Disclosure is a good principle in general, but it won't
necessarily cover all our bases in some of those predatory
tactics we see.
Chairman Green. And Ms. Clarke, what would you recommend?
Ms. Clarke. We need the CFPB and the DOJ to enforce the
law. We need data collection to bring transparency to the
practices of dealers and lenders. And finally, we need Congress
to not abdicate its responsibility to eliminate racial
discrimination, root, and branch across our country.
It is not enough for the States to do this work. They lack
the unique expertise and resources that are embodied inside of
our Federal Government agency. So we need strong Federal
precedents, if we are going to ever combat the crisis that we
are up against.
Chairman Green. Well, let me thank all of the witnesses for
appearing today, and the Members as well.
The Chair notes that some Members may have additional
questions for this panel, which they may wish to submit in
writing. Without objection, the hearing record will remain open
for 5 legislative days for Members to submit written questions
to these witnesses and to place their responses in the record.
Also, without objection, Members will have 5 legislative days
to submit extraneous materials to the Chair for inclusion in
the record.
And without objection,the hearing is adjourned.
[Whereupon,at 12:09 p.m.,the hearing was adjourned.]
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