Preserve Consumer Discounts on Auto Credit

Support CFPB Reform Provisions Included in H.R. 10, the Financial CHOICE Act


In 2013 the Consumer Financial Protection Bureau (CFPB) issued guidance which threatened to eliminate a dealer’s flexibility to offer consumers discounted auto loans. The CFPB was attempting to change the $1.1 trillion auto loan market and limit market competition without prior public comment, using flawed statistics and without analyzing the impact of its guidance on consumers, despite the likelihood it would raise credit costs for car buyers.  Congress is urged to continue vigorous regulatory oversight of the CFPB to ensure auto loans remain affordable. 


Most car buyers choose to finance their purchases through indirect financing at dealerships. Dealers often discount an interest rate to “meet or beat” a competitor’s rate or meet a consumer’s budget needs. The CFPB’s 2013 guidance pressures auto lenders to eliminate or limit a dealer’s ability to discount credit for consumers. By limiting market competition, the CFPB increases the overall cost of auto loans for consumers.

The CFPB based its 2013 policy on the claim that discounted interest rates create a fair-credit risk. However, a nonpartisan study of the CFPB’s policy found that its methodology to determine fair-credit compliance was prone to significant errors and ignored legitimate business factors that can affect finance rates (e.g., beating a competing rate). The CFPB knew of these serious flaws when it issued the guidance, yet failed to correct them. The auto industry takes fair credit very seriously and has proposed a fair-credit compliance system, based on a Department of Justice (DOJ) model that preserves discounts on credit for legitimate business reasons. 

The Government Accountability Office (GAO) recently issued an opinion that the guidance constitutes a “rule”. Since the guidance was issued without notice and comment, or any of the required administrative procedures, GAO determined this guidance was improperly issued. The GAO has effectively scrapped the auto lending guidance because it was not properly sent to Congress for review.

Last Congress, NADA supported H.R. 1737/S. 2663, the “Reforming CFPB Indirect Auto Financing Guidance Act,” which would protect fair-lending laws, rescind the flawed auto finance guidance and allow the CFPB to reissue it under a transparent process. H.R. 1737 overwhelmingly passed the House by a vote of 332-96 on Nov. 18, 2015. On June 8, the House passed the Financial CHOICE Act (H.R. 10), which includes the text of H.R. 1737 (Section 734). NADA sent a letter in support of provisions in H.R. 10 that affect dealers and bring accountability to the CFPB.

Key Points

  • Congressional oversight is needed to ensure the CFPB conducts auto lending efforts in a fair and transparent manner.The CFPB’s 2013 auto finance guidance would have a major impact on the auto lending market, yet was issued without prior notice, public comment or a hearing.
  • The industry strongly supports fair lending protections and has promoted a fair-credit compliance program based on a DOJ model that effectively manages fair-credit risk while preserving discounts on credit for consumers.
  • Preserving discounts for consumers keeps auto loans accessible and affordable. The CFPB admits it never analyzed the impact of its guidance on consumers. Subsequent analysis revealed that the guidance would increase auto credit costs, potentially push the marginally creditworthy out of the auto market, and lessen competition.


H.R. 10 now awaits consideration by the Senate.  NADA urges Congress to pass the CFPB reforms included in H.R. 10, which will preserve consumer discounts and keep auto loans accessible and affordable. 

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February 21, 2018