The U.S. House of Representatives voted last Tuesday to reject a 2013 Consumer Financial Protection Bureau (CFPB) bulletin that provided guidance regarding liability for discrimination in indirect auto lending. The same measure passed the Senate three weeks earlier and is now expected to be signed by the president.
The 2013 guidance was aimed at indirect auto lenders – lenders that work with auto dealers to provide loans for consumers seeking financing through the dealership where the car is purchased. Some indirect lending arrangements permit the dealer to charge the consumer an interest rate higher than that which the lender would accept, and provide compensation to the dealer tied to the amount of the markup achieved. According to the CFPB guidance, under some indirect lending arrangements, there is a “significant risk” that the incentive and discretion afforded to dealers will lead to pricing disparities based on race or other prohibited factors.
The CFPB guidance stated that the role of indirect auto lenders often involved sufficient participation in the credit decision to make the lender subject to Equal Credit Opportunity Act (ECOA) regulations barring racial and other discrimination in lending. According to the guidance, an indirect auto lender could face liability under the ECOA for permitting and incentivizing dealer markup if such a policy led to discriminatory lending practices. Then-CFPB Director Richard Cordray stated at the time that the bulletin “clarifies” the CFPB’s “authority to pursue auto lenders whose policies harm consumers through unlawful discrimination.”
Seeking to set aside the CFPB guidance, Congress invoked the Congressional Review Act (CRA). Part of the Republicans’ 1996 “Contract with America,” the CRA provides an expedited legislative process for Congress to negate recently issued agency rules by joint resolution. Following a CRA repeal, the agency is also prohibited from reissuing the rule or its equivalent unless Congress specifically authorizes the rule in a later enactment. The CRA route is attractive to proponents of deregulation because it involves streamlined procedures and it is not subject to filibuster in the Senate.
The recent actions against the CFPB bulletin mark the first time the CRA has been used to target informal agency guidance. Such use of the CRA is controversial because the act has historically been employed against formal agency rules. The CRA requires Congress to act within 60 legislative days after a rule is finalized. The CFPB guidance was issued as a bulletin in March 2013 – it did not go through formal rulemaking. In order to make the CRA applicable, Senator Pat Toomey (R-Pa.) requested and obtained a declaration from the Government Accountability Office that the guidance was a “rule” for purposes of the CRA, which reset the clock for review.
Critics of the CFPB have claimed that the auto lending guidance is an attempt to end-run the Dodd-Frank Act’s exclusion of auto dealers from CFPB jurisdiction and that the CFPB’s claims of discrimination in auto lending are based on flawed research.