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Legislation to put reins on CFPB inches along in U.S. House

September 25, 2015
A Congressional bill which would roll back efforts by the Consumer Financial Protection Bureau to eliminate a dealer’s flexibility to discount the annual percentage rate offered to consumers who finance their vehicle transactions, is expected to go to the House floor in late September or early October.
The CFPB in 2013 issued guidance that sought to change the way dealers are compensated for arranging customer auto loans. The guidance challenges a long-standing practice of dealers adding to an indirect auto loan’s percentage rate as compensation for acting as a middleman. 
Andrew Koblenz, National Automobile Dealers Association executive vice president of legal and regulatory affairs, said he is hopeful of the passage of House Resolution 1737, whose title is the Reforming CFPB Indirect Auto Financing Guidance Act. 
"But now is not the time to take the foot off the gas," Koblenz said earlier this month at the 2015 F&I Industry Summit. "We still have a little ways to go." 
The legislation would repeal the 2-year-old CFPB policy guidance which the NADA says was intended to pressure lending institutions to shift from the so-called dealer reserve practice to something such as flat fees for dealers.
The CFPB bases its guidance on claims that negotiated interest rates create a "significant" fair credit risk. However, a recent study by the nonpartisan Charles River Associates found the CFPB’s methodology unreliable and replete with errors. Moreover, the CFPB continues to ignore the fact that a variety of legitimate business-related factors can affect finance rates, such as beating a competing rate.
Despite 12 Congressional letters that have been sent to the CFPB, the agency has not publicly provided all the essential details of its methodology to substantiate its guidance.