CFPB Interest Rate Markup Rule Headed for Vote of Disapproval in Senate [EXCLUSIVE]

A Senate vote to dismantle the Consumer Financial Protection Bureau’s 2013 bulletin governing interest rate caps on indirect auto transactions could be up for a committee vote as early as this week, the office of the bill’s lead sponsor told Auto Finance News.

Jerry Moran (R-KS) introduced the bill (S.J.Res.57) in March and late last week Senate leader Mitch McConnell’s (R-KY) office informed Moran that the bill is on its way to a vote.

The original intent of the CFPB’s rule was to limit racial discrimination during the car buying process by forcing lenders to cap how much dealerships are allowed to markup interest rates on approved loans. The CFPB introduced the provision as a bulletin — meaning it’s just a restatement of laws already at play in the Equal Credit Opportunity Act (ECOA) — however in December the Government Accountability Office (GAO) determined the bulletin an official rule that’s subject to Congressional Approval.  

“This resolution of disapproval is an opportunity to reverse an inappropriate and ill-advised auto-lending guidance document issued by the CFPB in 2013,” Moran’s office said in a statement to AFN. “The non-partisan GAO made clear the CFPB erred in its issuance of this guidance and now Congress has an opportunity to correct this mistake. I encourage my colleagues on both sides of the aisle to support this resolution to provide greater stability in the automobile marketplace.”

Lenders are the ones who enforce the caps on their dealer partners and the CFPB has fined lenders in the past for going beyond 150 basis points. However, it’s unclear how many lenders have switched to that standard. Lenders across the industry feel the rule is “offensive” because it puts lenders on the hook for a process that’s ultimately done at the dealerships, said John Redding, partner at Buckley Sandler LLP. 

“It’s a bit counter-intuitive because this is not the broad view held, but I don’t know that elimination of this bulletin is really going to change much,” Redding told AFN. “If [the bulletin] really is just a restatement of the requirements under ECOA — and the bureau is inclined to pursue it that way — then removal of the bulletin doesn’t seem to change a whole lot.”