The Republican Party-dominated U.S. House of Representatives, with the encouragement of lobbyists for dealers and automotive lenders, has taken steps to constrain the Consumer Financial Protection Bureau.
It is unlikely any of those steps will become law, but the form they take show the theoretical, tactical and strategic approaches favored by the CFPB’s opponents.
In the first case, the House recently passed an amendment to a bigger appropriations bill which seeks to prevent the U.S. Department of Justice from using the disparate-impact legal theory to enforce anti-discrimination laws.
“This is Alice in Wonderland,” said Bill Himpler, executive vice president for the American Financial Services Association, referring to the disparate-impact theory espoused by the Department of Justice and the Consumer Financial Protection Bureau.
On May 29, AFSA and six other financial services trade organizations wrote to every member of Congress asking them to support the amendment. It passed 216-190 on the same day.
If it were made law -- which is unlikely, given the Democrat Party’s control of the U.S. Senate and the White House -- the amendment would withhold funds for litigation in which the Department of Justice seeks to use the disparate-impact theory to prove illegal discrimination.
While AFSA and the other groups say they don’t tolerate discrimination, there are a lot of things about the disparate-impact theory they dislike.
According to the theory, commercial actions have a “disparate impact” whenever legally protected groups of borrowers, such as minorities, pay more. It doesn’t matter to regulators whether the individuals or entities behind the commercial actions intended to discriminate. The theory says what matters is the end result, not the intention.
Out of nowhere
One particular “Alice in Wonderland” aspect Himpler cited is that disparate impact can seemingly pop out of nowhere. Regulators expect lenders to watch out for disparate impact in auto loans on both a dealer-by-dealer basis and on an aggregated basis, in which all loans at a particular lender are lumped together, looking for pricing disparities between protected groups and everyone else.
The difference between dealer-by-dealer and consolidated can mean the difference between a disparate impact and no disparate impact, critics said. For instance, at an AFSA auto finance conference earlier this year, audience members said a dealer in a high-cost area might charge everybody more, and a dealer in a faraway, low-cost area might charge everybody less. Theoretically there’s no discrimination dealer-by-dealer, but if both dealers used the same financing institution, it would look that way on a consolidated basis.
“Where does it come from?” Himpler asked. He said there was no discrimination at either dealership, yet disparate impact “magically appears.”
The letter from AFSA and the other groups cited the consent order among Ally Financial, the Department of Justice, and the Consumer Financial Protection Bureau earlier this year as an example of regulation gone wrong.
In the letter, the lender groups raised another basic complaint: That under the disparate-impact theory, lenders can be held liable for discrimination even if there was no intent to discriminate, and even if a lender “takes every step to prevent discrimination.”
Rescind March bulletin
Separately, the House Financial Services Committee voted Tuesday to rescind the auto lending bulletin that the CFPB released in March 2013, which said lenders could be taken to court if the use of dealer reserve led to minorities paying higher interest rates on car loans.
Dealers and auto lenders argued that the CFPB was changing federal policy through written guidance rather than new regulations so the agency could avoid releasing its underlying data or doing a cost-benefit analysis.
The bill passed by the committee would “implement a more transparent system for the CFPB to issue guidance in the future,” an NADA spokesman said in an e-mail.
However, the use of guidance is common across the federal government in cases in which agencies need to explain how they will interpret existing law -- in this case, the Equal Credit Opportunity Act. Defenders of the CFPB argue that the bulletin did not create any new legal requirements for lenders, but rather showed how the bureau intended to enforce existing laws.
Because these laws would remain intact, it was unclear how rescinding the guidance would stop the CFPB from pursuing enforcement cases against companies like Ally -- or otherwise change its handling of auto lending.
Indeed, the bulletin was not law, so rescinding it would amount to saying that something that isn’t law, isn’t law.
No companion bill has been introduced in the U.S. Senate. President Obama would likely veto such a bill if it were to pass through Congress.
You can reach Jim Henry at firstname.lastname@example.org