The U.S. House of Representatives passed a bill Tuesday that reverses the Consumer Financial Protection Bureau’s guidance limiting how much dealerships can mark up interest rates on auto loans.
Two months ago, several sources told Auto Finance News that the bill likely didn’t have any legs and would wind up lost in the political shuffle. Now, having passed the two chambers of Congress, it’s headed to President Donald Trump’s desk, where he’s expected to sign off on the rollback.
The original 2013 CFPB bulletin was intended to encourage auto lenders to help mitigate racial discrimination at dealerships by capping interest rate markup at 150 basis points as opposed to the industry standard 250 basis points. However, there was a lot of industry pushback because lenders felt there wasn’t sound statistical evidence that consumers were being discriminated against. Furthermore, the industry said this was a dealership issue, which would place it outside the CFPB’s scope.
This vote also marks the first time that lawmakers have used the Congressional Review Act to block a years-old agency action that goes beyond the parameters defined in the 1996 law, according to Politico. The industry took issue with how the original bulletin was constructed because it was done without a comment period and typical review process.
However, the CFPB at the time argued that it wasn’t creating a new rule, but rather restating laws already established in the 1974 Equal Credit Opportunity Act. Yet, in December 2017, the Government Accountability Office ruled that the bulletin was a rule change subject to Congressional approval.
By using the Congressional Review Act, Republicans were able to pass the measure on a 234-175 partisan vote — save for Sen. Joe Manchin (D-W.Va) who jumped party lines. The tactic was “an inappropriate and misguided use of the Congressional Review Act that sets a dangerous precedent,” said Rep. Maxine Waters (D-Calif.), the top Democrat on the House Financial Services Committee
Furthermore, lawyers have told Auto Finance News that the repeal may not change compliance around the law as lenders will still have to contend with the Equal Credit Opportunity act for which the CFPB’s bulletin was based on. Furthermore, several lenders have already agreed to consent orders that legally bind their interest rates moving forward until this completion of those orders.
Still, the industry is supportive of the rollback.
“Consumer Bankers Association members are committed to ensuring strong fair lending policies and practices are in place at their banks,” CBA President and Chief Executive Richard Hunt said in a statement. “However, the Bureau’s 2013 Auto Bulletin was a backdoor attempt at rulemaking and failed to provide banks with a clear blueprint to ensure compliance.”
