Auto dealer industry representatives warn that costs will rise for borrowers if the Consumer Financial Protection Bureau forces banks to halt auto loan markups determined by dealers.

"The warning followed the CFPB's bulletin this week that said banks are responsible for discrimination if their partner dealers mark up the interest rates on loans for minority borrowers or engage in other fair lending abuses. The agency is encouraging lenders to adopt a flat-fee model for dealer compensation," writes American Banker's Rachel Witkowski.

The CFPB, created under the 2010 Dodd-Frank reform law, said Thursday that internal research showed a disparity in interest rate markups for minorities. The bureau does not have authority to supervise auto dealerships directly, so it is instead enforcing lenders to oversee how their partners mark-up loans.

Auto dealership advocates said that by adopting the CFPB's financing rule it would hurt competition and ultimately boost car prices.

"The dealer-assisted financing model (indirect auto lending) has been enormously successful in both increasing access to, and reducing the cost of, credit for millions of Americans," the National Automobile Dealers Association and the National Association of Minority Automobile Dealers said in a joint statement released late Thursday. "The CFPB's attempt to eliminate the dealer's ability to discount the APR that it offers to consumers will only weaken the consumer's ability to secure financing at the lowest possible cost."

For the full piece see "Car Dealers Fight Back Against CFPB Auto Financing Rule" (may require subscription).