A resolution that would rescind the Consumer Financial Protection Bureau’s auto lending guidance, which aims to limit dealerships' retail margin on auto loans, passed by a narrow margin in the Senate on Wednesday. It will head to the House floor next for a vote.
Senate Joint Resolution 57, which passed with a 51-47 vote, would overturn a 2013 CFPB auto lending bulletin. The bulletin suggested indirect auto lenders limit dealer reserve -- the retail margin that dealerships earn for arranging a vehicle loan -- or eliminate dealer discretion on the margin altogether. Or, the guidance suggested, lenders should compensate dealers with a flat fee instead.
The CFPB has said that dealerships’ discretion to vary the amount of dealer reserve resulted in minorities being charged higher interest rates for auto loans than nonminority borrowers with similar credit, even if no discrimination was intended.
Trade groups applaud
The resolution does not change any fair credit law or regulation, Peter Welch, president of the National Automobile Dealers Association, said in a statement Wednesday.
In October, the Government Accountability Office said the 2013 CFPB auto lending bulletin should be considered a rule subject to the Congressional Review Act, which means Congress has the power to revoke it.
“We hope this [Congressional Review Act] resolution sees swift action in the House of Representatives, which has already demonstrated strong bipartisan support for repealing the CFPB’s flawed guidance and preserving important auto loan discounts for consumers,” Welch said.
The CFPB guidance, the American Financial Services Association said in a statement, “directed fundamental market changes to the industry, which was already regulated by other federal agencies and state laws and regulations.”
The guidance was issued without public comment or consultation with other federal agencies, the statement said.
“The vehicle finance market in the United States is a highly-competitive market which benefits consumers as dealers and lenders discount pricing and loan rates to sell and finance new and used vehicles,” Chris Stinebert, president of AFSA, said in the statement. “The vote today is in the best interests of the car-buying public.”
If the House passes the resolution and President Donald Trump signs it into law, the CFPB could not reissue a new guidance in the same form without authorization by Congress, which would halt the push to limit or eliminate dealer reserve, Welch wrote in a blog post last week.
NADA also continued to suggest that dealerships rely on the Fair Credit Compliance Policy and Program that it developed with the National Association of Minority Automobile Dealers and the American International Automobile Dealers Association as a way to ensure compliance with fair-lending rules.
Reuters contributed to this report.