By Katalina M. Bianco, J.D.
Representatives Frank Guinta (R-NH) and Ed Perlmutter (D-Colo) are spearheading a measure intended to rescind what the lawmakers call “flawed” guidance issued by the Consumer Financial Protection Bureau on indirect auto financing. The legislators said that the bureau’s guidance “harms consumers by limiting their ability to obtain discounted auto financing.”
Bureau guidance. The measure, the Reforming CFPB Indirect Auto Financing Guidance Act of 2015 (H.R. 1737) would repeal CFPB Bulletin 2013-02, issued by the bureau in March 2013. The guidance is intended to assist indirect auto lenders with Equal Credit Opportunity Act compliance and is directed toward auto lenders that permit dealers to increase consumer interest rates and compensate dealers with a share of the increased interest revenues.
According to the CFPB, an indirect auto lender’s markup and compensation policies alone may be sufficient to trigger liability under the ECOA if the lender regularly participates in a credit decision and its policies result in discrimination. The disparities triggering liability could arise within a particular dealer’s transactions or across different dealers within the lender’s portfolio. Therefore, an indirect auto lender that permits dealer markup and compensates dealers on that basis may be liable for these policies and practices if they result in disparities on a prohibited basis.
The bulletin included steps that indirect auto lenders subject to CFPB jurisdiction should take to ensure that they are in compliance with the ECOA and implementing Regulation B. The bureau further recommended that indirect auto lenders develop a strong fair lending compliance management program.
H.R. 1737. Lawmakers said that H.R. 1737 would repeal the bulletin because the guidance was “designed to pressure lending institutions into eliminating the availability of auto financing discounts.” Such discounts save consumers millions of dollars each year, they noted.
Guinta expressed concern that the CFPPB guidance was issued without a public comment period for consumers, small businesses, and other stakeholders. The bill would not only repeal the current bureau guidance but provide that any guidance on indirect auto lending in the future have a public notice and comment period before it was finalized.
Other provisions of the measure include a requirement that the CFPB consult with the Federal Reserve Board, Federal Trade Commission, and Department of Justice before issuing guidance and conduct a study on the costs and impact of the guidance on consumers and women-owned, minority-owned, and small businesses.
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