House Passes Bill to Undo CFPB Indirect Auto Lending Guidance

By Jeff Bater

House lawmakers cleared a measure repealing Consumer Financial Protection Bureau guidance on indirect auto lending designed to curb discrimination against minority borrowers.

The 234-175 vote May 8 on S.J. Res. 57 sends the measure to President Donald Trump for his signature. The Senate passed the Congressional Review Act (CRA) resolution April 18 along party lines, 51-47.

The 2013 guidance, in the form of a bulletin, outlined potential enforcement actions against third-party lenders that offer auto loans through car dealerships.

Dealers have discretion to increase, or mark up, the interest rate offered by the lender and keep the difference as compensation.

The CFPB bulletin explained the bureau would hold indirect auto lenders accountable for unlawful pricing policies that violated the Equal Credit Opportunity Act.

Among CFPB actions in the indirect auto lending market was a February 2016 settlement the bureau and the Justice Department reached with Toyota Motor Credit Corporation. The financing arm of the automaker agreed to change its loan pricing and compensation system.

CFPB Overreach?

Car dealerships are exempt from CFPB oversight under the Dodd-Frank Act. Congressional Republicans who pushed for repeal said the CFPB, in issuing the guidance, overstepped its authority by bypassing proper rulemaking procedures.

The CRA, a 1996 law, requires agencies to submit regulations to Congress and the Government Accountability Office (GAO) for review. To invalidate a rule, both chambers must pass a resolution.

The GAO, responding to a request by Sen. Pat Toomey (R-Pa.), issued an opinion in December finding that the CFPB bulletin qualified as a rule subject to the CRA.

Consumer advocates say the House and Senate votes using the CRA to overturn agency guidance sets a dangerous precedent that stretches the law beyond its intent.

By setting a precedent of repealing regulatory guidance, Republicans are opening “a Pandora’s box that could have deeply harmful consequences,” Rep. Maxine Waters (D-Calif.) said during a floor debate on the resolution May 8.

To contact the reporter on this story: Jeff Bater in Washington at jbater@bloomberglaw.com

To contact the editor responsible for this story: Michael Ferullo at mferullo@bloomberglaw.com

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