Senate Votes to Scrap CFPB Directive Targeting Auto-Lending Bias

(Bloomberg) -- The U.S. Senate has moved to scrap a Consumer Financial Protection Bureau policy aimed at preventing discrimination in auto lending as Republicans employed an unorthodox procedure to attack agency guidance that they said was an effort to bypass normal rule-making.

Senators voted Wednesday to upend a directive released in 2013, when the CFPB was run by Obama administration appointee Richard Cordray. If a similar measure is passed by the House and signed into law by President Donald Trump the regulator’s guidance will be overturned.

At issue is a common practice by car dealers: They add a markup to the interest rates that lenders charge on loans and pocket it. Under Cordray, the CFPB contended that such mark ups were routinely higher for minorities, and warned it might punish lenders for not adhering to fair lending laws.

“There was growing evidence that dealers marked up loans more often and higher for minorities than for whites with similar credit profiles,” Senator Elizabeth Warren said Tuesday in a floor speech. Voting to rescind the CFPB guidance enables “the Trump Administration’s systematic dismantling of fair lending laws,” the Massachusetts Democrat said.

Standard Practice

Auto dealer groups defend the markups as a standard practice that represents a reasonable price for connecting borrowers with lenders. Republican lawmakers contend that the consumer bureau guidance was an example of regulatory overreach.

“The CFPB, under Richard Cordray, frequently overstepped its authority while snubbing Congress and the public in the process,” Senator Pat Toomey of Pennsylvania, co-sponsor of the legislation with Senator Jerry Moran of Kansas, said in a statement. “This auto lending guidance is an example.”

The Republicans contend that the CFPB directive was actually a rule-making that should have been subject to the Congressional Review Act, which lets lawmakers scrap agency regulations within 60 legislative days. Toomey has weighed using that approach to reverse other policies, including leveraged lending guidance issued by agencies including the Federal Reserve.

Overturning the consumer bureau guidance would benefit banks and auto finance companies like Ally Financial Inc. that make a lot of auto loans in partnership with dealers, according to analysts at Capital Alpha.

“Dealers have even more to gain, given the high percentage of their profits these revenue-sharing agreements have long represented," Capital Alpha’s Chuck Gabriel wrote in a note.

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