House Voted Overwhelmingly to Rescind Flawed CFPB Guidance Last Congress
The Consumer Financial
Protection Bureau (CFPB) issued guidance that threatens to eliminate a dealer’s
flexibility to offer consumers discounted auto loans. The CFPB is attempting to
change the $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. Since the CFPB’s actions will raise credit costs
for car buyers, Congress is urged to continue vigorous oversight of the CFPB’s
flawed auto lending actions 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 in a way that would 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
The CFPB is basing its policy on its 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 flaws 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. To date, the CFPB has declined to provide full
transparency regarding its auto finance guidance or a legitimate reason for not
adopting the effective DOJ fair credit alternative.
Last Congress, NADA supported H.R. 1737/S. 2663, the
“Reforming CFPB Indirect Auto Financing Guidance Act”. These bills would have
protected fair lending laws, rescinded the flawed auto finance guidance, and
allowed the CFPB to reissue it under a transparent process. H.R. 1737 passed
the House by a veto-proof vote of 332-96 (including 88 Democrats) on November
18, 2015. S. 2663 was referred to the
Senate Banking Committee, which held two CFPB hearings where committee members
on both sides of the aisle expressed support for protecting affordable auto
- 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.
The House Financial CHOICE Act,
expected to be reintroduced soon by House Financial Services chairman Jeb
Hensarling (R-Texas), would reform the CFPB to make it more transparent and
accountable. NADA urges Congress to continue vigorous oversight of the CFPB to
keep auto loans competitive, accessible, and affordable.
Download this Brief
March 17, 2017