Bill Aimed at Repealing CFPB Auto Finance Guidance Passes House
November 19, 2015
WASHINGTON, D.C. — Legislation aimed at repealing the Consumer Financial Protection Bureau (CFPB)’s March 2013 guidance on dealer participation took another step toward reaching President Barack Obama’s desk, where it’s likely to be vetoed.
H.R. 1737, the “Reforming CFPB Indirect Auto Financing Guidance Act,” was approved yesterday by a 332-96 House of Representatives vote — Democrats accounting for all the “Nay” votes. But the bill, which would also add new steps to the bureau’s guidance-writing activities, also received approval from 88 House Democrats. One Republican and four Democrats did not vote.
The House’s passage of H.R. 1737 comes more than four months after the legislation, introduced by Reps. Frank Guinta (R-N.H.) and Ed Perimutter (D-Colo.) this past April, was approved by the House Financial Services Committee by a bipartisan 47-10 vote. The bill, which currently has 166 co-sponsors, including 65 democrats, now heads to the U.S. Senate, where insiders believe it faces some hurdles.
“I’m happy that both Democrats and Republicans have rallied around my bill, which would help qualified car buyers to purchase vehicles,” Congressman Guinta said. “If the CFPB truly cares about policies in the best interests of consumers, the agency should reissue guidance that is clear, fair and respects due process."
Rep. Perimutter added: “The 14th amendment of the United States Constitution allows for due process and equal protection under the law. What we have before us today is a conflict of these two principals. The CFPB rushed through a formal policy change while not giving affected parties the ability to comment and be heard. H.R. 1737 encourages the CFPB to reissue their auto lending bulletin under a more transparent and open process in order to promote access to credit for all hardworking Americans when they purchase a vehicle.”
The legislation is supported by the U.S. Consumer Coalition, the National Automobile Dealers Association (NADA), the Alliance of Automobile Manufacturers, the Motorcycle Industry Council, the American Financial Services Association (AFSA) and others. But on Monday, the Obama Administration said it strongly opposes the passage of H.R. 1737 “because it would revoke important guidance designed to prevent discriminatory pricing of auto loans.”
“The bill would create confusion about the existing protections in place to prevent discriminatory auto loan pricing, and effectively block the CFPB from issuing related guidance in the near-term,” read the administration’s statement. “The administration is committed to ensuring that all Americans receive fair terms and pricing on auto loans, and are not discriminated against.”
If passed, which the NADA believes is possible based on yesterday's vote, the legislation would require that the bureau provide a public comment period, consult with other agencies that share jurisdiction over the indirect auto finance market and disclose its testing methodologies before issuing any further guidance.
"The NADA is encouraged by the strong bipartisan support H.R. 1737 received, and we view Wednesday's vote as a clear indiciation of the subtantial support that exists among both parties for protecting consumers when it comes to auto financing," said NADA spokesperson Jared Allen.
In a statement released to F&I and Showroom, the AFSA said it will do its part to push the legislation through the U.S. Senate. "AFSA will now turn its attention to teh Senate, where we will continue to encourage policymakers to defend access to safe, responsible credti for vehicle purchases," read the statement.
In September, Andrew Koblenz, the NADA’s executive vice president of legal and regulatory affairs and general counsel, called the legislation a “good-government bill” that would ensure the bureau understands the market and the implications of its activities, as well as listens to the public and stakeholders. On Monday, the association called on dealer members to contact their local Congressperson to urge them to vote “Yes” on the bill.
“It is reasonable for Congress to ask for minimal due process to protect consumers,” said NADA President Peter Welch. “We commend Congressmen Guinta and Perlmutter for working on a bipartisan basis to protect car buyers.”
The association also launched in mid-September an initiative to highlight the true economic value of dealer-assisted financing. It included video testimonials from real consumers and a new website.
Since issuing its guidance in March 2013, the CFPB has pressured finance sources to eliminate or limit dealer discretion when marking up rates on consumer finance contracts. It charged that such discretion often leads to minority borrowers paying more in interest rates than non-minority borrowers under a legal theory known as disparate impact, which says a policy can be deemed discriminatory if it has an adverse impact on a protect group — even if it’s unintentional.
Under that theory, the bureau has reached Equal Credit Opportunity Act settlements with Ally for $98 million, American Honda Finance Corp. for $24 million and Fifth Third Bancorp for $18 million. The latter two finance sources agreed to lower dealer reserve caps, while Ally elected to maintain its dealer-compensation model.
The NADA has urged the bureau to embrace a fair credit compliance program it proposed along with the National Association of Minority Automobile Dealers (NAMAD) and the American International Automobile Dealers Association (AIDA). It calls for dealers to document any deviation from a preset compensation amount included in consumer credit offers.
The program, which the associations introduced in January 2014, is based on a model developed by the Department of Justice in a 2007 case involving dealers, but the CFPB has yet to endorse the model. “The Department of Justice has already developed a way to address fair credit risk in auto financing while preserving competition,” Welch said. “It’s a viable, common-sense solution, and the government should preserve the benefits of a competitive auto finance market that benefits all consumers.”