Republicans would let car dealers continue racist practices undeterred
There’s an upcoming House Bill, HR1737, that would make it easier for auto dealers to get away with being racist. It’s being supported by Republicans* and is being voted on in the next couple of weeks. We should fight against it.
The issue centers on the problematic practice of “dealer markups,” discretionary fees that brokers slap on after the credit risk of a given borrower has been established. It turns out that these fees vary in size and are consistently bigger for blacks and Hispanics. Which means that if a number of people of different races but a similar credit history walk into a car dealership and buy a car, the minorities will typically end up paying more. This is illegal discrimination under the legal tool called the theory of “disparate impact.”
The Consumer Financial Protection Bureau (CFPB) has been making a valiant effort to hold accountable the financiers behind these loans. For political (read: lobbying) reasons the CFPB doesn’t have regulating power over auto dealers directly, but they do regulate the bankers that supply the money, and they’ve been nailing those bankers for unfair practices. For example, there’s an ongoing case against Ally Financial for upwards of $80 million, which would go to compensating the victims.
Here’s the amazing thing: Ally Financial doesn’t claim their loans weren’t racist. They simply claim that they were less racist than the CFPB thinks, and that the methodology that the CFPB used to measure the racism is flawed. The Republicans agree, and they’re trying to remove the CFPB’s ability to enforce disparate impact violations altogether**.
So, just to recap, the Republican argument is: if you can’t specify exactly how racist this practice is, then you can’t stop people from doing it at all. It’s a dumb and dangerous argument. It is, in fact, exactly what disparate impact was meant to avoid.
A little background on why the measurement is so involved. In mortgage lending, the race of the borrower is recorded. In fact the race of every applicant is recorded, so that later on people can go back and see if there are racist practices going on. This is not so for auto lending, however. That means that when the CFPB suspects racism in auto lending, they have to impute the race of the applicant based on the information they know. Then, once they have partitioned the borrower population into “probably minority” and “probably white” subgroups, they measure the extent to which the “probably minority” gets overcharged. If it’s substantial, they charge the lender with discrimination and allot damages.
The opponents of the CFPB methodology claim that the race estimates are inaccurate; in particular, they charge that white people are sometimes being mistakenly labeled black or Hispanic. But consider this. That error, of overestimating minorities, would be alleviated by the second step, because the measurement of the extent of racism would be diluted if the “probably minority” group contained a bunch of white people, for the very reason that white people don’t suffer from racism. So it’s not even clear that the amount of damages being awarded is inflated; it’s just that the damages aren’t provably being sent to exactly the right people.
In statistical terms, we are worried about false positives – white people who might receive a compensation check for racist practices – and the proposed solution is to ignore all the actual victims of racist practices – so all the true positives. It’s throwing the baby out with the bathwater.
Even so, the CFPB’s race model is an imperfect methodology, as all models which depend on proxies are. And hey, you can try it yourself here.
Let’s take a step back. What’s the long-term goal here? It’s most definitely not to stand by, watching car dealerships screw minorities, and then after the fact to step in and assess damages. The actual goal is to put an end to the racist policies themselves.
What would that look like? Well, BB&T, another big financing bank for car loans, is changing from the dealer markup system to a system of flat fees which solves this particular problem (there are others!). From the article:
The bank didn’t attribute the move to pressure from regulators, but in a written statement the bank cited “fair and equal treatment of all consumers,” and said it was launching a “nondiscretionary dealer compensation program.”
To state the situation frankly: the anti-discrimination policies that the CFPB has been developing puts pressure on car dealers’ banks, and thus on car dealers, to deal fairly and transparently with their customers. And pushback against those policies is a vote to keep shady, discriminatory negotiations with car dealers that, generally speaking, screw minorities.
From my perspective, as a data scientist who studies both algorithmic unfairness and institutional racism, this is just the beginning of a much larger debate around what kind of processes we can audit with algorithms, what constitutes evidence of discrimination, and how quickly – or slowly – the laws are going to catch up with technology. It’s a litmus test, and it’s on the verge of failing badly.
* and some Democrats as well. See the full list of supporters here.
** Technically, the CFPB would still be able to enforce Fair Lending laws, but given that their methodology would be scrapped, it’s not clear how they’d actually go about doing that.