Trump signs measure eliminating BCFP guidance/rule on ‘indirect auto lending’

Legislation removing 2013 guidance issued by the federal consumer financial protection agency – which was later deemed a “rule” by a congressional watchdog agency – was signed into law Monday by President Donald Trump in a ceremony closed to press.

The legislation, S.J. Res. 57, overturns 2013 guidance from the Bureau of Consumer Financial Protection (BCFP) on indirect auto lenders’ compliance with federal fair lending requirements. The Congressional Review Act (CRA), which gives Congress power to overturn or eliminate regulations passed by federal agencies within a certain window (typically, within 60 legislative business days after the rule has taken effect), was the statutory vehicle used to overturn the rule.

The enactment of the resolution by Trump’s signature marks 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.

In a statement, House Financial Services Committee Chairman Jeb Hensarling (R-Texas) (who said he attended the signing ceremony) said the president’s action Monday heralded a change at the BCFP. “Gone are the days of a rogue Bureau using its unchecked powers to sidestep due process and harm the very consumers it is charged with protecting,” Hensarling said. “I look forward to continuing to work with President Trump, Acting Director Mulvaney, and my colleagues in Congress to ensure the Bureau, as well as all other federal regulatory agencies, are held accountable for their actions and act in a transparent manner.”

Acting BCFP Director Mick Mulvaney issued a statement thanking the president for signing the legislation eliminating the rule adopted by the agency he oversees. “In this case, the initiative that the previous leadership at the Bureau pursued seemed like a solution in search of a problem,” he said. “Those actions were misguided, and the Congress has corrected them.”

He added that he wanted to make it “abundantly clear that the Bureau will continue to fight unlawful discrimination at every turn. We will vigorously enforce fair lending laws in our jurisdiction, and will stand on guard against disparate treatment of borrowers.”

The guidance, issued in 2013 (in Bulletin 2013-02), 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 contained in 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.”

This arrangement allows lenders to compensate 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. According to the bureau’s 2013 bulletin, 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 in April passed S.J.Res. 57 on a vote of 51-47; the House passed it May 8 on a vote of 234 to 175.