The Consumer Financial Protection Bureau on Thursday released abulletin stressing that auto dealers who participate in indirect lending agreements must comply with the Equal Credit Opportunity Act when marking up interestrates.

“Consumers should not have to pay more for a car loan simplybased on their race,” said CFPB Director Richard Cordray. “Today'sbulletin clarifies our authority to pursue auto lenders whosepolicies harm consumers through unlawful discrimination.”

In a release, the CFPB said research indicates indirect lendingmarkup practices may lead to African Americans and Hispanics beingcharged higher markups than other, similarly situated, whiteconsumers.

The bulletin also provides suggestions for ways indirect lenderscan limit fair lending risk.

Indirect auto lenders often allow the dealer to charge theconsumer a higher interest rate, an arrangement commonly known as“dealer markup.” The lender typically shares part of the revenuefrom that increased interest rate with the dealer.

As a result, the CFPB said, markups generate compensation fordealers while frequently giving them the discretion to chargeconsumers different rates regardless of consumercreditworthiness.

Lender policies that provide dealers with this type ofdiscretion increase the risk of pricing disparities among consumersbased on race, national origin, and potentially other prohibitedbases potentially violating the ECOA, the bureau said.

The CFPB recommended that indirect auto lenders within itsjurisdiction take steps to ensure that they are operating incompliance with fair lending laws as applied to dealer markup andcompensation policies.

These steps may include, but are not limited to, imposingcontrols on dealer markup, or otherwise revising dealer markuppolicies; monitoring and addressing the effects of markup policiesas part of a robust fair lending compliance program; andeliminating dealer discretion to markup buy rates, insteadcompensating dealers with flat fees.

The bulletin is available for review on the CFPB's website.