U.S. Senate Votes to Nullify Safeguards Against Discrimination in Auto Lending

Release Date: 
April 18, 2018
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For Immediate Release:                       

U.S. Senate Votes to Nullify Federal Safeguards Against Discrimination in Auto Lending

Reversing CFPB Guidance Would Invite Confusion on Past Regulatory Actions

The U.S. Senate voted 51-47 to approve S.J. 57, a resolution under the Congressional Review Act that would repeal a 2013 guidance document on discrimination in auto lending issued by the Consumer Financial Protection Bureau.

“Eliminating the CFPB guidance will widen the gap between car buyers who receive fair financing and car buyers who do not,” said Christine Hines, legislative director at National Association of Consumer Advocates.

The CFPB issued its Indirect Auto Lending Guidance in 2013, which reminds auto lenders to comply with the fair lending requirements of the Equal Credit Opportunity Act (ECOA). It addresses a practice called “dealer markups.” For consumers seeking to finance their car purchases, dealers have discretion to increase the interest rate offered by a lender and keep some or all of the difference as compensation.

The evidence shows that “dealer markups” are subjective, unrelated to credit risk, and cause the average finance charges on the loans of African-American and Latino customers to be higher than those paid by similarly situated white customers.

When auto manufacturers attempt to fend off better safety and green standards for cars, they often contend that “affordability” will suffer. But in fact, it is “dealer markups” on purchases that present a costly and unjust problem for ordinary car buyers.

Meanwhile, discrimination permeates many aspects of consumer lending, generally. In 2017, the CFPB reported that its fair lending actions resulted in over $400 million in remediation to harmed consumers in redlining, auto financing, and other areas.

A reversal of the guidance, which has been in effect for five years, also could attract regulatory chaos. The resolution to overturn it came after the Government Accountability Office (GAO) issued an opinion and concluded that the guidance was effectively a rule for purposes of the Congressional Review Act (CRA), meaning it arguably could be repealed by Congress.  A repeal would disrupt the CRA’s intent to allow Congress to review and challenge recently finalized agency actions. The resolution would place other established agency guidance at risk of repeal, including those that industry players rely on.

S.J. Res 57 now moves to the U.S. House of Representatives.

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