Auto lending reforms sought by the Consumer Financial Protection Bureau could hurt consumers, congressional Republicans warned today.
In a letter sent to the bureau yesterday and obtained by Automotive News, Rep. Spencer Bachus of Alabama and 34 other U.S. House Republicans said that paying dealerships a flat fee for every auto loan rather than a cut of the interest rate -- which the bureau says is needed to curb bias -- would raise borrowing costs or shut poorer buyers out of the new-car market.
"The controls strike us as onerous and unrealistic," the letter said, "and restricting consumer choice is highly problematic."
The letter from Bachus, a former chairman of the powerful U.S. House Financial Services Committee, shows the continued pressure Congress is placing on the 2-year-old bureau's auto lending activities.
Rep. Terri Sewell, D-Ala., sent a similar letter to the bureau last month, asking the bureau to show the data behind its recent guidance on bias in auto lending. With today's letter, a majority of members of that committee have now signed such letters.
The guidance has energized opposition from new-car dealers, which Congress exempted from regulation by the bureau. Auto lenders are subject to bureau oversight, however, as are buy-here, pay-here dealerships, which finance their own loans.
Bachus' letter asked the bureau to provide details about how it detected bias. The bureau says it has found that racial minorities have paid higher interest rates on loans than whites with similar credit histories, but it has not released details of that study.
The letter also asked the bureau to explain what proxies it used to determine the race of car buyers. Dealerships are legally barred from collecting that information. And it asked the bureau to release any analysis of how the directives would affect the cost of financing for car buyers.
Bailey Wood, a spokesman for the National Automobile Dealers Association, says the group supports the goals of the letter.
Once the group can review the data behind the bureau's guidance, NADA wants to meet with lenders and regulators, he says.
"Our goal is to come to a resolution that makes lenders happy, makes the CFPB happy and makes dealers happy," Wood said.
"There are several different options. We would love the opportunity to sit down with the bureau and lenders in a room and say, 'Look, here are some options that we've come up with. We'd like to discuss them with you.' Maybe the lenders also have some way that we can meet the requirements of the lenders and the dealers and the bureau, all in one shot."
Most finance providers have already voluntarily agreed to cap the size of dealer reserve payments at 2 or 3 percentage points in order to ensure that dealers do not put large and discriminatory markups on auto loans.
Wood says NADA cannot comment on other possible changes to financing practices until the group has the opportunity to review the bureau's findings. Until then, he says, any suggestions are "not ready for prime time."
A bureau spokesperson did not return a message seeking comment by press time.