Senate Passes Resolution to Nullify CFPB Auto Loan Guidance

The Senate Wednesday passed a resolution to nullify the 2013 auto sales guidance issued by the CFPB—a move that could pave the way for future challenges of agency guidance.

The resolution passed, 51-47.

The agency issued what it called “guidance,” on the issue but the Government Accountability Office said it amounted to a rule. And under federal law, rules must be open for public comment; the guidance was not open for comment.

If passed by the House and signed by President Trump, this use of the Congressional Review Act could lead to Congress challenging other agency guidance that has not gone through the formal rulemaking process.

The CRA prohibits Senate filibusters on such resolutions and they take only 51 votes to be passed by the Senate.

In a “Statement of Administration Policy,” the White House said that if the resolution passed, Trump’s senior advisors will recommend that he sign it.

CUNA supported efforts to repeal the guidance.

“Credit unions support this concept since CFPB bulletins, like rules, should take into account unintended consequences on smaller financial institutions,” CUNA President/CEO Jim Nussle said in a letter to senators this week.

NAFCU also endorsed the resolution.

“While the unprecedented use of the Congressional Review Act on guidance may create future uncertainty, we are supportive of Congress finding ways to provide credit unions the flexibility to best serve their members,” said NAFCU Director of Legislative Affairs Brad Thaler.

The CFPB guidance stated that auto dealers who participate in indirect lending must comply with the Equal Credit Opportunity Act when marking up interest rates. The agency said at the time that research indicated that indirect auto lending practices may lead to African Americans and Hispanics being charged higher interest rates than white consumers.

When it was issued, credit union and auto sales groups questioned the methodology of the CFPB analysis and questioned the process the CFPB used in developing the guidance.

The CFPB had argued that it was not required to solicit public comment because the guidance was not a formal rule.

Sen. Pat Toomey (R-Pa.) disagreed and asked the Government Accountability Office to review the guidance. The agency said it should have gone through the formal rulemaking process and as a result, Congress could try to nullify it.

However, during floor debate on Tuesday, Sen. Elizabeth Warren (D-Mass.) said the CFPB guidance was needed to ensure fairness in the auto sales business.

“The CFPB found out that when auto dealers were helping customers get financing for a car loan, minority customers were often given worse loans than their White counterparts,” she said, adding, “Let’s be clear. Discrimination in auto lending is alive and well.”

But Senate Banking Chairman Mike Crapo (R-Id.), said that in issuing the guidance, the CFPB was making an end run around the rulemaking process.

“It is important that Congress disapprove this guidance because it was an attempt by the CFPB to make substantive policy changes through guidance rather than through the rulemaking process governed by the Administrative Procedure Act,” he said. “It was also an attempt to regulate auto dealers who were explicitly exempted from the CFPB’s supervision and regulation under the Dodd-Frank Act.”

Consumer groups said they were disappointed with the Senate action, citing a recent report by the National Fair Housing Alliance that showed that more than half the time white borrowers with weaker credit records received less expensive pricing options than non-white borrowers with better credit.

“If this guidance gets overturned, it will undermine the progress that the CFPB has made to limit unlawful racial discrimination in the auto lending market.” said Rebecca Borné, senior policy counsel at the Center for Responsible Lending. “Years of data make clear that racial discrimination harms the economic viability of families of color, especially those who are low-income, where a car is often one of the biggest purchases made by a household.”