Disapproval of a Rule relating to "Indirect Auto Lending and Compliance with the Equal Credit Opportunity Act" - S.J. Res. 57 (Preview)

Summary              

S.J. Res. 57 nullifies a bulletin published by the Consumer Financial Protection Bureau (CFPB) that provides guidance to lenders who finance automobiles through a dealership in compliance with the Equal Credit Opportunity Act (ECOA). (CFPB Bulletin 2013–02 (March 21, 2013). Furthermore, S.J. Res. 57 ensures the CFPB does not issue substantially similar rules.

Background

On March 21, 2013, the CFPB released Bulletin 2013-02 titled "Indirect Auto Lending and Compliance with the Equal Credit Opportunity Act in an attempt to provide guidance to auto lenders for compliance with the Act. However, the CFPB is explicitly prohibited from regulating auto dealers by the Dodd-Frank Wall Street Reform and Consumer Protection Act. According to the Committee, although the bulletin does not purport to offer guidance to auto dealers, its practical effect is to regulate dealers.

“Furthermore, the bulletin raises concerns among auto lenders because it asserts that ECOA allows for a “disparate impact” theory of liability in which a lender may be held liable for discrimination where a facially neutral lending practice disparately impacts minority borrowers, even where the lender did not intend to discriminate against them.

“The bulletin advises that, in order to avoid liability under ECOA, financial institutions having indirect lender relationships with auto dealers should either impose controls on dealer compensation policies or forbid dealers from charging retail interest rates on consumer auto loans altogether.

“Although the CFPB maintains that its bulletins are nonbinding guidance, it is simultaneously aware that such guidance must be taken seriously by market participants, because just the cost of being subjected to a CFPB investigation, even if it does not result in a CFPB enforcement action, is enormous. Accordingly, the bulletin is tantamount to regulation, except without public notice or opportunity for comment.”

The Government Accountability Office (GAO) reviewed the CFPB’s bulletin and concluded that it qualified as a rule under the Congressional Review Act (CRA), thereby making it eligible for rollback by simple majority vote in Congress.[8] To ensure agencies adhere to congressional intent, the CRA requires any rule to be transmitted to Congress for review. The CFPB did not fulfill this rulemaking requirement despite the significant regulatory-like ramifications of bulletin.

The House passed similar legislation, H.R.1737, the Reforming CFPB Indirect Auto Financing Guidance Act, by a vote of 332 to 96 on November 18, 2015. This legislation was not structured or passed pursuant to CRA rules and standards.

According to the bill’s sponsor, “The CFPB wrongly used its over-reaching indirect auto-lending guidance as an enforcement weapon, proceeding down the path of an aggressive enforcement action in search of ‘market-tipping settlements. Congress must reassert its role in policy-making and provide some stability to the auto-lending marketplace to provide lower costs for all car purchasers.”

Cost

A Congressional Budget Office (CBO) estimate is not currently available.