Support CFPB Reform Provisions Included in H.R.
10, the Financial CHOICE Act
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 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
The CFPB bases 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. The CFPB has declined to provide full
transparency regarding its auto finance guidance or a legitimate reason for not
adopting the DOJ fair credit alternative.
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 passed the House by a veto-proof vote
of 332-96 (including 88 Democrats) on November 18, 2015. On May 4, the House Financial Services Committee
passed the Financial CHOICE Act, a
Dodd-Frank reform bill, H.R. 10, which includes the text of H.R. 1737 (Sec. 734). NADA
sent a letter in support of provisions in H.R. 10 that affect dealers and bring
accountability to the CFPB on May 1.
- 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 full House is expected to consider H.R. 10 in June. NADA
urges Congress to pass reforms to the CFPB, as included in H.R. 10, which will
preserve consumer discounts and keep auto loans accessible, and affordable.
Download this Brief
May 17, 2017