Auto Finance News
Profit-Based Pricing May Ease Fair Lending Compliance Burden
Authored by Stephen BernardApril 16, 2007
Lawyers and third-party technology providers discussed during an Office of the Comptroller of the Currency seminar last month how profit-based pricing can be used to prove compliance with fair lending laws.
"Bank lenders are wary [that] people are treated differently for unknown reasons," said Jean Noonan, manager of the Washington, D.C., office of the law firm Hudson Cook LLP and a speaker at the OCC seminar. Profit-based pricing "potentially meets business and comliance needs, which is why it is being adopted," she added.
Profit-based pricing solutions provide lenders with a paper trail that enables them to show why and when each pricing decision was made, Noonan said, as she discussed the legal ramifications of instituting profit-based pricing.
Nomis Solutions, Inc., a provider of profit-based pricing technology, offered the OCC insight into how its profit-based pricing technology removes objectivity from the loan origination process. Nomis's program uses algorithms to determine profit and volume levels based solely on adjusting prices, enabling lenders to decide where to set interest rates in order to meet certain profit or volume goals, said Robert Phillips, founder and chief technology officer at San Bruno, CA-based Nomis.
Pricing engines such as Nomis's create data reports that provide lenders with records of all changes in pricing. Having the data readily accessible can prove that lenders used objective measures to alter pricing, as opposed to subjective, potentially discriminatory characteristics like race, ethnicity, or gender, Noonan said.
Regulators were especially concerned with how nonprime borrowers are treated because of the wide range of interest rates that can be charged from customer to customer, Phillips said. In the nonprime auto finance market, it is common to see variations as large as 300 basis points between car buyers, Phillips said.
