Banking and Finance Law Daily Senators, industry react to auto lending guidance rollback
Thursday, April 19, 2018

Senators, industry react to auto lending guidance rollback

By J. Preston Carter, J.D., LL.M.

A number of U.S. senators and industry and advocacy groups issued statements reacting to Senate approval of S.J. Res. 57, a Congressional Review Act Resolution to disapprove the Consumer Financial Protection Bureau’s 2013 Auto Lending Guidance (see Banking and Finance Law Daily, April 18, 2018). The Bureau’s guidance, intended to assist indirect auto lenders with Equal Credit Opportunity Act compliance, was directed toward auto lenders that permit dealers to increase consumer interest rates and compensate dealers with a share of the increased interest revenues (CFPB Bulletin 2013-02).

According to a Statement of Administration Policy, the CFPB bulletin limits the ability of auto dealers to offer auto loans to their customers and was not issued pursuant to notice-and-comment rulemaking. As a result, the CFPB failed to allow the public to comment before it made significant changes to an important sector of the economy.

While the CFPB acknowledged that its auto-lending bulletin provides guidance and clarity, the Bureau maintained that it is nonbinding and has no legal effect on regulated entities. In contrast, a GAO opinion letter asserted that the bulletin goes beyond the attributes of guidance and clarity and satisfies the Congressional Review Act’s definition of a "rule" because, among other things, it is a "general statement of policy designed to assist indirect auto lenders to ensure that they are operating in compliance with ECOA and Regulation B, as applied to dealer markup and compensation policies" (see Banking and Finance Law Daily, Dec. 7, 2017).

Senate support for resolution. Senator Mike Crapo (R-Idaho), Chairman of the Senate Banking Committee, spoke on the Senate floor in favor of the resolution, saying the CFPB guidance "was an attempt by the CFPB to make substantive policy changes through guidance rather than through the rulemaking process governed by the Administrative Procedures Act." Crapo added that "It was also an attempt to regulate auto dealers who were explicitly exempted from CFPB supervision and regulation under the Dodd-Frank Act."

Resolution co-sponsor, Sen. Jerry Moran (R-Kan), applauded passage of the resolution. Moran contended that, although the Dodd-Frank Act specifically prohibited the CFPB from regulating auto dealers, the Bureau "found a way around the ban," by publishing a "bulletin," which has "threatened auto dealers’ ability to negotiate the terms of these loans with their customers and has been used to sanction auto-financing companies."

Sen. David Perdue (R-Ga) approved the resolution, calling the CFPB’s guidance a "wild goose chase over auto loan discrimination." Perdue accused the Bureau of "abusing its access to consumer data" and "trying to infer race from a race-blind application."

Senators opposed. In a speech on the Senate floor, Sen. Sherrod Brown (D-Ohio), Ranking Member of the Senate Banking Committee, said, "The bill before us today sends a message to lenders across the country that if you’re illegally discriminating, you’re free to get away with it." According to Brown, the guidance in question describes auto lenders’ responsibility, established by the ECOA, to avoid discriminatory lending practices. Brown called the CRA resolution a "loophole" being used by Republicans "to attack our basic right to equality."

In her floor remarks, Sen. Elizabeth Warren (D-Mass) said the CFPB's guidance helps stop discrimination in auto lending by ensuring auto lenders comply with the Equal Credit Opportunity Act, and she criticized the resolution as being "part of the broader Republican attack on efforts to fight economic discrimination."

"Today’s attack on this guidance by Senate Republicans removes critical protections that will now cost consumers of color hundreds of dollars in extra interest on their car note," according to a statement issued by Sen. Catherine Cortez Masto (D-Nev). Masto said that, under the current administration, "the CFPB has stopped fulfilling its mission to protect consumers and is instead protecting corporate special interests."

Views of industry, advocacy groups. The Competitive Enterprise Institute and Consumer Bankers Association praised the Senate vote. The CEI said the CFPB rule "unfairly penalized auto lenders for any unintentional disparate impact in loans to minority consumers." The CBA called the bulletin "a backdoor attempt at rulemaking without notice or comment and lacked the clarity needed by lenders."

Certain groups also released statements opposing the resolution. According to Americans for Financial Reform, "By voting to roll back the CFPB’s work, senators have emboldened banks and finance companies to engage in racial discrimination by charging millions of people of color more for a car loan than is justified."

Public Citizen called the Bureau bulletin "nonbinding," and said the Senate "wasted valuable floor time" repealing the auto lending guidance that Acting Director of the CFPB Mick Mulvaney could get rid of "just by snapping his fingers." The group also expressed apprehension that this precedent "stretches the CRA far beyond its original intent," and opens up a "new front in the right’s war on regulations."

The Consumer Federation of America issued a press release and Issue Brief contending that "dealer markups are a harmful practice that inflate the price of car loans and hurt poor and minority borrowers." The CFA also called S.J. Res. 57 "a dangerous expansion of the Congressional Review Act that could lead to further gridlock in Washington and uncertainty in markets across the country."

Companies: Americans for Financial Reform; Competitive Enterprise Institute; Consumer Bankers Association; Consumer Federation of America; Public Citizen

MainStory: TopStory CFPB DoddFrankAct EqualCreditOpportunity Loans

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