In March 2013, the CFPB released industry guidance regarding auto financing interest rates and dealership reserves. On September 8, 2014, Congress finally took steps to nullify this guidance.
The March 2013 guidance included findings that by allowing dealerships to set their own reserve, or the amount of customer interest they receive, auto lenders were allowing discrimination against protected classes of borrowers. The CFPB stated that protected groups, like women and minorities, frequently pay higher interest rates even when lenders or dealerships do not intend to discriminate against these borrowers. Issued without public notice or comment, the March 2013 guidance called for a switch to flat fee or fixed percent systems as opposed to the existing discretionary systems.
H.R. 5403, or the Reforming CFPB Indirect Auto Financing Guidance Act, was introduced September 8, 2014. The Act would nullify the CFPB’s March 2013 guidance and require a public notice and comment period before future auto finance guidance is issued. It would also require the CFPB to conduct a study on the costs and impacts of future guidance on female/minority-owned business and small business prior to issuance. The National Automobile Dealers Association has voiced strong support for the bill, stating that compliance with the March 2013 guidance would fundamentally “change the $905 billion auto loan market and limit market competition.”
The CFPB will hold a public hearing on auto finance Thursday, September 18 in Indianapolis. Director Richard Cordray will be in attendance and the hearing will include remarks from industry and consumer groups.