An Obama-era regulation intended to restrain discriminatory lending practices by automobile lenders appears to be on its way out.
On April 18, under the Congressional Review Act (CRA), the Senate voted to repeal the Consumer Financial Protection Bureau’s (CFPB’s) 2013 guidance on dealer markups in the automobile lending process. The CFPB’s guidance was in response to discriminatory lending allegations arising out of auto dealers’ use of third-party lenders to secure financing for consumer automobile purchases. When consumers purchase through dealerships, dealers will often coordinate indirect financing through a third-party lender. In some cases, dealers could charge consumers a higher interest rate than the rate quoted by the lender, also known as a “dealer markup.”
Citing research that such markup practices may lead to racial and other forms of discrimination, the CFPB issued a series of guidelines intended to prohibit dealers from discriminating against consumers through the use of dealer markups. The CFPB estimated that potentially discriminatory markups could result in tens of millions of dollars in consumer harm every year. Opponents of the guidelines argued that the CFPB exceeded its authority and questioned the legitimacy of the studies that concluded that dealer markups were applied in a discriminatory manner.
The use of the CRA to target informal guidance also marks a novel, and potentially controversial, use of the act. The act is a 1996 law that gives Congress the power to invalidate federal-agency rules. Traditionally, Congress has used the CRA to overturn formal rules issued by federal agencies within 60 days of the rule’s enactment. Last year, however, Senator Pat Toomey (R.-Pa.) wrote to the U.S. Government Accountability Office (GAO) about whether the CFPB’s guidance on auto lending practices might qualify as a rule and, if so, whether it could still be vacated under the CRA. In December, the GAO concluded that because the 2013 CFPB guidance “is a general statement of policy designed to assist indirect auto lenders to ensure that they are operating in compliance with” the requirements of law, it “is a rule subject to the requirements of CRA.” And because that rule had never been formally submitted to Congress to evaluate under the Administrative Procedures Act, it was still subject to repeal under the CRA.
As for the 2013 CFPB guidance, the Senate’s 51-47 resolution – made largely along party lines (Sen. Joe Manchin [D-W.Va.]) being the lone crossover vote for the resolution) – does not settle the matter. From here, the resolution passes to the House, where it will likely pass if support continues along party lines.