How AI Can Keep Auto Lending Fair for Everyone
Think banks are heavily regulated? Take a look at auto leasing. Car dealerships play a key role in financing vehicles, but with that role comes significant compliance risks. Recent regulatory crackdowns show that dealerships need tools to ensure fair lending compliance. AI solutions can prevent violations before they escalate into millions of dollars in legal trouble.
The Growing Scrutiny on Auto Lending Practices
As of July 1, 2024, the U.S. had 16,936 franchised dealerships employing 1.1 million people — about 200,000 of them involved in securing financing, according to the National Automobile Dealers Association. That’s 200,000 people who directly influence lending terms, interest rates, and add-on pricing, creating potential fair lending risks at scale.
Dealerships often connect consumers with third-party lenders, and even as intermediaries, they’re subject to fair lending laws like the Equal Credit Opportunity Act (ECOA). The Consumer Financial Protection Bureau (CFPB) warns that such indirect lenders must ensure compliance, particularly in dealer markups and compensation policies. Failure to do so has led to lawsuits, penalties, and reputational damage.
The Hidden Risks in Auto Lending
Key compliance risks include:
Discriminatory pricing – Markups on financing and add-ons that increase costs for certain groups.
Unfair lending practices – Inconsistently applying criteria to credit decisions, leading to disparities.
Lack of oversight – Poor monitoring allowing unintentional but unlawful discrimination.
Real-World Consequences: When Compliance Fails
Recent enforcement actions underscore the risks:
Asbury Automotive Group: The Federal Trade Commission filed a complaint against Asbury Automotive Group in August 2024, alleging three Texas dealerships charged Black customers $298 more and Latino customers $214 more for identical add-ons compared to white customers. (The dealership group responded in October by filing suit against the FTC, alleging its complaint is unconstitutional in part because the federal agency has not released its methodology.)
Coulter Motor Co.: The state of Arizona and the FTC filed a complaint alleging that Latino customers were charged $1,200 more in interest and add-ons than non-Latino white counterparts. Under a proposed court order, Coulter Motor Co. and its general manager, Gregory Depaolo, agreed to pay a $2.6 million judgment. The dealership was also ordered to establish a comprehensive fair lending program with a fair lending officer, employee training, and policies for fees and markups.
Passport Automotive Group: Passport, a Washington-D.C. area dealership, paid $3.3 million in refunds after settling with the FTC in 2022 over similar add-on and discrimination issues, as well as failing to enforce and monitor its own anti-discrimination policies.
These cases show why proactive monitoring is crucial. Without it, dealerships may not detect discriminatory practices until fines and lawsuits pile up.
How AI Keeps Dealerships Ahead
Banks use AI to monitor transactions — auto lenders should, too. HarmCheck AI flags real-time language indicative of discriminatory lending practices, predatory pricing, and other violations, allowing dealerships to correct issues before they escalate.
Why Real-Time Monitoring Is a Must
AI compliance tools don’t just prevent fines—they protect reputations, build trust, and ensure fairness. Real-time monitoring keeps dealerships compliant and millions of dollars in their pockets.
Amanda Nurse is the editorial and operations coordinator at Alphy.
HarmCheck by Alphy is an AI communication compliance solution that detects and flags language that is harmful, unlawful, and unethical in digital communication. Alphy was founded to reduce the risk of litigation from harmful and discriminatory communication while helping employees communicate more effectively. For more information: www.harmcheck.ai