Congress likely to repeal consumer protection regulation for auto loans

April 18, 2018

An Obama-era regulation designed to prevent unnecessary interest-rate hikes on auto loans may be gone soon.

On Tuesday, the Senate approved a resolution to repeal guidance issued by the Consumer Financial Protection Bureau in 2013 designed to keep lenders from disproportionately charging minorities more for car loans. The measure is headed next to the House where it likely will pass.

The CFPB issued the guidance in 2013 as a protection for minority consumers after warnings that lenders may be—even inadvertently—charging minorities more than whites for the same loans. The agency used the rule to levy millions in fines on Ally banks and Toyota's loan division for violations. The CFPB's guidance suggested indirect lenders used by dealerships to arrange financing should negotiate a flat or fixed rate with dealers, before consumers are involved.

Instead, outside lending agencies may allow dealers to charge extra interest above the lending rates, which is usually returned back to the dealers. The extra charges are often called "dealer markup" and may add hundreds of dollars to the overall loan.

Republicans and many dealers said the policy overreached the consumer protection bureau's purview. The guidance was issued in 2013 without congressional approval or a public-comment period for dealers and lobbyists. The guidance only underscored the Equal Credit Opportunity Act, which already makes illegal discrimination in lending.

A lobby group for car dealers praised the resolution.

"Today's vote is confirmation to dealers everywhere that the agency overreached when issuing its 2013 indirect auto financing guidance. The agency concluded, without accurate supporting data, that dealerships were using race as a determining factor when issuing loans. Today the senate has righted a wrong," American International Automobile Dealers Association CEO Cody Lusk said in a statement.

A group of 30 civil rights organizations, including the NAACP, sent a letter to congressional leaders this week urging opposing the measure.

"This resolution is the latest in a series of attempts to chill federal efforts to end widespread unlawful discrimination. Discrimination in the auto lending market is well-documented and results in people of color paying more for years to finance a car purchase," the group wrote."...Discrimination in auto lending has long been widespread, and a significant culprit is the discretionary dealer mark-up."

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