As we predicted, auto lenders scored a significant victory last week in opposing the Consumer Financial Protection Bureau’s (CFPB’s) efforts to regulate the auto financing industry. House Resolution 1737, The Reforming CFPB Indirect Auto Financing Guidance Act, passed the House with bipartisan support in a vote of 332-96.
To recap, the bill challenges the CFPB’s March 2013 guidance to auto dealers and indirect lenders on compliance with the fair lending requirements of the Equal Credit Opportunity Act (ECOA). The concern, from the CFPB’s perspective, is that discretionary lending and dealer markups risk discriminatory loan pricing. In other words, dealers, through what is called a “reserve,” can adjust the interest rate on an auto loan on a consumer-by-consumer basis. As the CFPB claims, this can result in price disparities based on race, color, religion and other protected factors in violation of the ECOA.
Proponents of the bill, including the House Financial Services Committee, see it differently. In its recently released and stinging report, “Unsafe at any Bureaucracy: CFPB Junk Science and Indirect Auto Lending,” the committee challenges application of the ECOA to auto lenders and questions the congressional intent to provide for disparate impact liability under the ECOA. The report also criticizes the CFPB’s “controversial statistical method” for measuring racial disparities and finds that the CFPB’s flawed methodology, as acknowledged in the CFPB’s internal documents, could overestimate these disparities. The report warns that the CFPB’s attempts to regulate the auto finance market are more likely to harm, not help, consumers.
Despite this criticism, the questionable statutory authority, and lack of congressional intent to bring disparate impact cases under the ECOA, the CFPB has been aggressively regulating auto lenders. Without admitting wrongdoing, numerous vehicle lenders have reached high-dollar settlements with the CFPB on this issue. House Resolution 1737 just cleared a significant hurdle to curbing this aggressive enforcement. Passing the Senate and receiving approval from President Obama may prove more challenging. The Obama administration has largely favored sweeping CFPB regulation.