Trump signs repeal of auto-loan policy that targeted racial bias

President Trump has repealed auto-lending guidance from the Consumer Financial Protection Bureau (CFPB), revoking a rule that was put in place to protect minority customers from predatory practices.

Trump’s signature on a congressional resolution erases the CFPB’s 2013 guidance targeting “dealer markups,” the additional interest that is added to a customer’s third-party auto loan as compensation for the dealer. 

The president signed the resolution in a private White House signing ceremony.

Auto dealers, banks and their allies in Congress said the CFPB policy was an unfair and unfounded attack on an essential and harmless financing tool. 

The move caps off an unprecedented use of congressional power, as lawmakers had never before passed such a resolution to revoke informal guidance from a federal agency.{mosads}

Republicans and a small group of Democrats voted to repeal the CFPB guidance under what is known as the Congressional Review Act (CRA). That law allows a simple majority of lawmakers in the House and Senate to vote to repeal a federal rule; it also bans the agency from replacing a rule with a similar measure in the future.

The resolution cleared the House earlier this month after clearing the Senate in April.

While Congress has used the CRA to repeal more than a dozen Obama-era federal rules since 2017, this is the first time that lawmakers have successfully overturned guidance from a federal agency that had not been finalized as a formal regulation.

The CFPB took aim at dealer markups in 2013. Under former Director Richard Cordray (D), the CFPB warned auto dealers that the use of markups on third-party loans could lead to a lawsuit from the agency under anti-lending discrimination laws.

The CFPB and fair lending advocates have pointed to several studies, including one that was conducted by the bureau, that found racial disparities in dealer markups. Those studies found that minority customers often paid higher dealer markups than white customers with similar credit profiles.

While the 2013 guidance was not a formal rule, the CFPB used the policy to launch a slew of lawsuits against automakers and lenders it said violated fair credit laws with discriminatory markups. The CFPB and Justice Department sued Ally Financial in December 2013 for close to $100 million in fines and damages, and also sued Honda and Toyota for tens of millions of dollars over similar charges.

Opponents of the rule questioned the methodology behind the studies that showed discriminatory markups and accused the CFPB of exploiting a loophole to circumvent its lack of jurisdiction over the auto industry.

House Financial Services Committee Chairman Jeb Hensarling (R-Texas), who attended the signing ceremony, praised “the hard work of Republicans in Congress” to stop “a rogue Bureau using its unchecked powers to sidestep due process and harm the very consumers it is charged with protecting.”

The CFPB policy seemed immune from repeal until last December, when the Government Accountability Office ruled that informal agency guidance could be repealed under the review law as if it were a formal rule. Sen. Pat Toomey (R-Pa.), who requested the analysis, introduced a resolution to repeal the auto lending guidance soon after.

Acting CFPB Director Mick Mulvaney in a statement praised Trump and lawmakers for repealing the auto guidance and said the bureau would consider submitting other similar policies for congressional review.

The repeal of the guidance is the second Republican reversal of a key Cordray-era CFPB policy under the CRA. Trump signed a resolution last November that repealed the bureau’s rule on forced arbitration, issued in July 2017.

The rule had banned banks and credit card companies from forcing their customers into arbitration agreements that prevent those customers from joining class-action lawsuits.  

Updated at 3:09 p.m.