Senators support car-loan measure
Vote favors end of bias warning
WASHINGTON — The Senate on Wednesday voted to kill a 5-year-old policy warning auto lenders not to discriminate against minority-group borrowers.
The legislation, which passed 51-47 largely along party lines, is the latest Republican rebuke of the Consumer Financial Protection Bureau. Sen. Joe Manchin, W.Va., was the only Democrat to vote in favor of the measure.
The auto industry complained for years about the bureau guidance, which it said was unfair.
“The CFPB wrongly used its overreaching, indirect auto-lending guidance as an enforcement weapon, proceeding down the path of an aggressive enforcement action in search of ‘market-tipping settlements,’” said Sen. Jerry Moran, R-Kan., who sponsored the legislation.
Democrats and consumer advocates cautioned that rescinding the bureau’s guidance would encourage bad behavior in the more than $1 trillion auto finance market. “Many auto dealers are actively discriminating against people of color. This behavior is pervasive, and the bureau’s guidance would help to end it,” said Karl Frisch, executive director of the consumer advocacy organization Allied Progress. “They may try to dress it up with political spin, but today the Senate endorsed discrimination.”
But Republicans framed the issue as Congress going to the rescue of businesses.
“The goal here is simple: We want to protect consumers and job creators from needless interference by the federal bureaucracy,” said Senate Majority Leader Mitch McConnell.
A range of trade groups representing bankers, car dealers and other businesses backed the GOP’s efforts.
The fight centers on guidance issued by the bureau during President Barack Obama’s administration in 2013 that took aim at a common industry practice that allows auto dealers to mark up interest rates offered by finance companies. Finance firms such as Ally, for example, set an interest rate based on objective criteria — including borrowers’ credit history and the size of their down payments. Auto dealers are then free to raise the interest rates within certain limits. The finance companies and the dealers split the extra profits.
The bureau argued that auto dealers were using that discretionary markup to charge black and Hispanic borrowers more than white ones, even if they had the same credit scores. Over several years, the agency fined several auto lenders millions of dollars for discriminating against minority-group borrowers, and some lenders stopped allowing discretionary markups, cutting into auto dealer profits.
The guidance quickly became one of the bureau’s most controversial campaigns. House Republicans opened a multiyear investigation into the matter, arguing that the bureau used faulty data to support the policy. The guidance, auto dealers said, made it more difficult to offer consumers discounts on their car purchases out of fear they would be accused of discrimination.
McConnell said the warning was a particularly egregious overstep by the bureau and that the vote was “another victory in this Congress’ record of rolling back overregulation.”
Sen. Sherrod Brown, DOhio, said that in repealing guidance issued five years ago Republicans were signaling that they want to interfere with potentially thousands of other federal agency decisions going back two decades.
The Senate legislation relies on the Congressional Review Act to rescind the guidance, a tool Republicans have used to block more than a dozen Obama-era rules. It is expected to quickly gain approval in the House, which has passed similar measures.
The bureau overstepped its legal authority by trying to regulate auto dealers, said Rep. Jeb Hensarling, R-Texas, chairman of the House Financial Services Committee. “Studies showed that the rule could lead to many creditworthy borrowers paying more for their auto loans,” he said in a statement.