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House passes legislation to roll back CFPB's auto financing 'guidance'

November 20, 2015
The U.S. House on Nov. 18 passed legislation that requires the Consumer Financial Protection Bureau to follow a transparent process when issuing auto finance guidance. A 2013 CFPB directive has impacted the auto loan market, yet it was issued without prior notice, public comment or a hearing.
The Obama administration reportedly opposes the House bill, which impacts auto financing arranged by auto dealers, 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," the White House said in a statement.
House Resolution 1737 won bipartisan support in the 332-96 vote, with 88 Democratic representatives joining 244 Republicans.
The bill, which still must be considered by the Senate, also requires cost estimates for consumers and consultation with other government agencies vested with regulatory authority, and allows the CFPB to re-issue new guidance with transparency and public participation.
The CFPB said it issued its 2013 guidance to help ensure that customers are not charged disproportionately higher prices for auto loans because of their race, color, religion or "other characteristics that should have no bearing on loan decisions."
The CFPB wants to eliminate a dealer’s ability to discount credit but fails to acknowledge "legitimate business reasons," such as budget constraints, which explain why a dealer may discount an interest rate.
The Washington Post recently debunked the Center for Responsible Lending’s claim that dealer compensation "cost consumers $26 billion a year." The Post found that CRL’s conclusions were based on misapplied, unexplained, and false data and gave the claim 4 Pinocchios — the newspaper’s maximum "Whopper" rating of a false statement.
Congressional authors of H.R. 1737 carefully drafted the bill to narrowly focus only on CFPB auto finance guidance. Previously, Democratic members of the House Financial Services Committee in the last Congress objected to a bill (H.R. 4811) that would have affected all CFPB guidance as being overbroad.
CFPB enforcement actions are forcing lenders to settle based on information and analysis the CFPB knows to be flawed. One undisputed study found that the CFPB’s proxy methodology had errors of 41 percent. The CFPB admits errors by as much as 20 percent.
The legislation is supported by the auto industry, including auto dealers, who complained that the 2013 guidance could eliminate a dealer’s flexibility to discount auto loans in the showroom.
"The CFPB has sought, through ‘guidance,’ to make it impossible for dealers to discount interest rates for their customers, even for customers facing serious budget constraints," National Automobile Dealers Association President Peter K. Welch wrote in a Nov. 17 op-ed in The Hill, a U.S. political website that is read by the White House and more lawmakers than any other site.