Pub. 4 2014 Issue 1

12 AUTOMOBILE DEALER NEWS ILLINOIS www.illinoisdealers.com Mistake #4 Believing that results based on “proxies” for race, sex, and ethnicity are too unreli- able to hurt you. Because auto finance applicants do not provide monitoring information about their race, ethnicity, and sex, the government must use“proxies” based on names and geographic locations to make educated guesses about the applicants’characteristics. Proxies to iden- tify whether a person is Hispanic or is black or white have substantial margins of error. Proxies to identifymales and females based on given names are more reliable, but not perfect. Remember the Johnny Cash song about a boy named Sue? While I’ve never met a male Sue, there are a surprising number of males named Shirley or Beverly and many females named Michael. Presi- dent Obama’s mother was named Stanley, after her father. And good luck guessing whether Chris or Jackie is male or female. That leads some members of our indus- try to claim that the whole proxy business is so unreliable that courts will reject any government effort to make a case against a creditor based on proxies. In fact, a few years ago a group of auto dealers made exactly this argument when they were sued by the U.S. Department of Justice for alleged fair lending violations in pricing. They lost. [In 2007, the Justice Department settled two cases alleging discrimination by Pennsylvania Ford dealerships. As part of the settlement, the dealers were allowed to offer more favorable financing to cus- tomers in each of these situations, and in several other situations, too. United States v. Pacific Ford, Inc., (E.D. Pa., consent or- der filed September 4, 2007); United States v. Springfield Ford, Inc., (E.D. Pa., consent order filed August 21, 2007)]. It is possible, of course, that someone else will challenge the use of proxies in fair lending cases in the future and have more success. But don’t hold your breath. Not many creditors have the war chest to fight a protracted legal battle with the United States government, especially when the likely outcome is, at best, uncertain. What this means is that the govern- ment will continue to analyze pricing in auto finance using proxies for race, sex, and ethnicity. When they find signifi- cant, unexplained differences in markup amounts charged to minorities, they will bring enforcement actions. Dealers and financial institutions that are charged with discrimination will have little choice but to settle and pay up. Believing that cases based on proxies won’t succeed is to engage in magical thinking. Don’t fall for it. Mistake #5 Deciding there is nothing you can do to avoid markup disparities. n five fair — continued