Senate Votes To Roll Back Rules Aimed At Fair Auto Lending For Minorities

By Charles Lane

Published April 18, 2018 at 5:11 PM EDT

A man walks by a New York City auto dealership in 2017. Studies have found that African-Americans and Hispanics have systematically been charged a higher markup on auto loans than have white borrowers.

The Senate approved a measure Wednesday that would roll back policies designed to protect minority car buyers from discriminatory loan terms. Republicans passed the bill by a narrow margin, and it now moves on to the House.

The policy was issued in 2013 by the Consumer Financial Protection Bureau. Congress is using a new interpretation of the Congressional Review Act to change it. This unprecedented tactic could reverse thousands of regulations that Congress dislikes.

In the auto loan marketplace, pricing isn't transparent, so it's easy for dealers to take advantage of unwitting consumers.

"African-Americans and Hispanics in particular — have systematically been charged a higher markup on auto loans than White borrowers," a study found.

The CFPB found similar results and issued guidance to dealers that auto loans are governed by the Equal Credit Opportunity Act. The policy statement upset auto dealers and congressional Republicans who saw the bureau acting without authority.

Auto dealers adamantly deny that bias plays a role and call the studies flawed. They say the CFPB guidance will make it harder for them to make auto loans to consumers.

"It puts consumers at an incredible disadvantage of being able to get great rates on auto financing," says Jared Allen, a spokesman for the National Automobile Dealers Association.

Since the the CFPB issued its guidance,studies have shown that discriminatory pricing continues. Advocates for fair lending say discrimination still exists in auto lending, despite regulatory guidance, because of the bureau's limited scope and resources.

"There has not been the level of enforcement that there needs to be to really address the problem," says Debby Goldberg, vice president of special projects at the National Fair Housing Alliance. "It's difficult; it's not an easy thing to do."

If the House also approves the measure, it could subject thousands of other federal policy guidelines to congressional review. Normally, the Congressional Review Act is limited to repealing regulations within 60 days of first being published in the Federal Register or presented to Congress. The Government Accountability Office issued an opinion saying that also applies to "guidance."

"It sent shock waves through the regulatory community when the GAO opinion first appeared," says Susan Dudley, a professor of regulatory studies at George Washington University.

She says academics have grown weary over the years of the increasing number of guidances issued by federal agencies. Formal regulations are subject to long public comment periods. Guidance might take the form of thousands of bulletins or memos issued by agencies every day and is an easy way for bureaucracy to achieve goals.

"Everyone can agree that this should not be used to create binding law that can send someone to jail that would require a penalty," Dudley says. "And yet agencies have increasingly been doing that."

The bill now moves to the Republican-controlled House, where it has already been introduced by Lee Zeldin, R-N.Y. It is expected to receive a warm welcome.