CFPB Feels the Pressure on Auto Loans
Under fire from both its critics and supporters, the CFPB is trying to reassure lawmakers and downplay concerns about its efforts to root out discrimination in the auto lending market.
In a letter to Senate and House lawmakers on Monday, CFPB Director Richard Cordray outlined the methods the bureau is using to investigate potential violations of fair lending laws by lenders who provide financing for car dealers.... he acknowledged the CFPB has not studied the potential ripple effects of the guidance on the broader market and whether it could limit credit availability, something that is likely to rankle lawmakers worried about their constituents' access to affordable transportation.
The tension underscores the challenge the CFPB has faced as it tries to write new financial rules to protect consumers: when those rules threaten to make credit more difficult to obtain, the bureau comes under pressure from friends and foes alike. The CFPB issued a warning in March that lenders who give dealers discretion to mark up interest rates are at higher risk of violating anti-discrimination laws. But lawmakers on both sides of the aisle have pushed for more details and raised concerns in letters to Cordray that the guidance could limit competition.
The industry has said the bureau is unfairly targeting lenders for discrimination that is unintentional and extremely difficult to monitor. And auto dealers have complained the guidance is an end run around the 2010 Dodd-Frank law, which exempted them from CFPB oversight. Meanwhile, some of the bureau's traditional supporters in Congress are pushing back against its efforts to crack down on auto lending discrimination.
In an Oct. 30 letter to the bureau, 11 Senate Democrats joined 11 of their Republican colleagues in telling the bureau that the dealer markup system “frequently results in consumers obtaining a lower cost of credit than is otherwise available to them.”
“Although the CFPB has alleged that ‘disparate impact’ discrimination is present in the indirect auto financing market, the bureau has yet to explain its basis for this assertion,” wrote the senators, led by Rob Portman (R-Ohio) and Jeanne Shaheen (D-N.H.).
In a statement accompanying the letter, Shaheen noted that she is a “strong supporter” of the bureau but said the public should be given an opportunity to weigh in on the issue. “I'm concerned that the recent policy guidance from CFBP could restrict legitimate credit options and increase costs for many Americans looking to finance their cars,” she said.
The Senate missive follows a series of letters from members of the House Financial Services Committee, including 11 Democrats, several of whom are members of the Congressional Black Caucus and some of the bureau's closest allies. Consumer advocates who support tougher scrutiny of auto lending point the finger at the powerful auto dealers' lobby. They flexed their muscle once before, managing to secure a key exemption from CFPB oversight under Dodd-Frank.
Dealers ... have an incredibly broad reach — like community banks, they are ubiquitous in congressional districts across the country — and they have made the recent guidance one of their top lobbying priorities of the year, reaching out to lawmakers across Capitol Hill.
The National Automobile Dealers Association, by far the largest of the dealer trade groups, spent $2.3 million lobbying Congress in the first three quarters of 2013 on a range of issues, including the CFPB's regulation of dealer financing, according to data from the Center for Responsive Politics. “The hope here is that [the CFPB is] going to produce answers, it's going to produce transparency, it's going to produce information, so we understand the basis for this initiative,” said Paul Metrey, the group's chief regulatory counsel for financial services issues.
Metrey also pointed out that auto lending was — and continues to be — a bright spot in a dour economy. The market didn't experience the widespread defaults or abuses seen in the mortgage market during the financial crisis. Metrey and others say it's not clear whether a problem actually exists, and they worry an overzealous CFPB could hurt an otherwise healthy and competitive market.
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