Economic Rights Are Essential to the Pursuit of Happiness

Richard_Cordray_newLast week, Consumer Financial Protection Bureau (CFPB) Director Richard Cordray addressed students at Michigan State University on the anniversary of three pivotal moments in American History: the Supreme Court’s 1954 Brown v. Board of Education decision, the 1964 Civil Rights Act, and the Equal Credit Opportunity Act of 1974. With these three historic events, the United States moved closer to fully realizing the inevitable truth that civil rights, political rights, and economic rights are inextricably linked. They are all necessary for a free and democratic society.

While Brown v. Board of Education and the 1964 Civil Rights Act are relatively known for their roles in reducing legal discrimination, Director Cordray used his speech to highlight a less-known antidiscrimination law: the 1974 Equal Credit Opportunity Act (ECOA), which celebrates its 40th anniversary this year. For the first time, ECOA outlawed discrimination by creditors against borrowers based on race, ethnicity, sex, age, and national origin.

While fairness in the lending law has been on the books for four decades, lending discrimination against people of color persists today. People of color have always been targeted by subprime lenders, but the housing crisis fanned the flames of predatory practices as lenders offered risky mortgages that ultimately led to default and foreclosure, pushing millions out of their homes. Latino wealth was decimated, and the racial wealth gap between Latinos and Whites continues to widen more than ever.

Even when controlling for similar credit profiles, research shows people of color routinely pay significantly more for auto loans than Whites.

Last December, NCLR strongly supported a historic $98 million settlement between the CFPB and auto lending giant Ally Financial. In violation of the ECOA, more than 200,000 Hispanics, Asians, and Blacks were charged higher rates for auto loans.

Despite its efforts to root out unscrupulous lenders in the auto sector, the CFPB has its hands tied due to the exemption of the real culprits in auto loan discrimination against minority borrowers: the car dealership lenders who set initial loan prices for borrowers. Despite the fact that auto lenders play a pivotal role in working with customers and setting auto loan prices, the CFPB has no oversight authority of the dealers because they are not considered to be engaging in financial activities.

The auto market must not be exempt from the preservation of Latinos’ economic and civil rights. Like buying a home, the decision to buy a car often involves a large loan paid over a period of years, amounting to the second most expensive purchase most borrows will make in a lifetime.

As of today, laws like the Equal Credit Opportunity Act are in place to protect people of color from discrimination, but ongoing price discrimination against minority borrowers doesn’t reflect this resolution.

To create a fully fair and equitable market, the CFPB should be granted authority over the auto market to directly enforce the Equal Credit Opportunity Act and all relevant antidiscrimination legislation.