House setting stage for action next week on repeal of bureau’s indirect auto-loan guidance

The House Rules Committee on Monday will discuss how to proceed on S.J.Res. 57, which would rescind the CFPB’s 2013 fair lending guidance for indirect auto lenders.

A resolution passed last month by the Senate to repeal 2013 guidance – now deemed a rule – on indirect auto lenders’ compliance with federal fair lending requirements appears to be headed for House action in coming days. The measure, S.J.Res. 57, is on the agenda for a House Rules Committee meeting Monday that is expected to produce rules for consideration on the House floor.

The Bureau of Consumer Financial Protection (BCFP) issued the 2013 guidance in Bulletin 2013-02, which gives the bureau’s views on the applicability of federal fair lending laws to “indirect” auto lending (indirect financing facilitated by a car dealer through a third-party lender). The bulletin outlines indirect auto lenders’ compliance with the fair lending requirements of the Equal Credit Opportunity Act (ECOA) and its implementing regulation, Regulation B. It relates to policies used by some indirect auto lenders that allow dealers to mark up the interest rate charged to the consumer above the indirect auto lender’s “buy rate.”

As explained in the bulletin, the lender in such an arrangement compensates the auto dealer based on the difference in interest revenues between the buy rate and the actual rate charged to the consumer in the contract executed with the auto dealer. The bureau stated that the incentives created by such policies allow for a significant risk for pricing disparities on the basis of race, national origin or other prohibited bases.

Late last year, in response to a letter from Sen. Patrick Toomey (R-Pa.), the Government Accountability Office (GAO) found that the guidance was, in fact, a rule – and thus subject to the 1996 Congressional Review Act. CRA allows Congress to overturn a rule within 60 business days of its effective date.

The Senate last month passed S.J.Res. 57 on a vote of 51-47, and the White House issued a statement indicating the president would sign it if it reached his desk in its current form.

If the House does pass the measure, as expected, this would be the first time Congress has successfully used to the CRA to block an agency action taken years ago and outside of the window provided by law.

GAO letter to Sen. Patrick Toomey re: CFPB bulletin/guidance on indirect lending and CRA coverage

Statement of Administration Policy on S.J.Res. 57

CFPB Bulletin 2013-02