House votes to repeal auto-loan guidance, setting new precedent

The House voted Tuesday to repeal a controversial edict on auto lending from the Consumer Financial Protection Bureau (CFPB), capping off an unprecedented use of congressional powers that could give Republicans a new way to reverse regulations.

Republicans and a group of Democrats passed a resolution to repeal the CFPB’s 2013 guidance on “dealer markups,” which is the additional interest an auto dealer adds to a third-party loan as extra compensation. The measure to repeal the 2013 policy, which is not a formal federal rule, passed the Senate last month.

President Trump is expected to sign the resolution. If he does, it would be the first time Congress used its powers under the Congressional Review Act (CRA) to repeal an informal federal policy.

Lawmakers voted along party lines to repeal the CFPB guidance, with 223 Republicans and 11 Democrats supporting the resolution. The measure, if signed by Trump, would strike the CFPB auto-lending policy from the books and ban the bureau from issuing a similar rule in the future. 

The CFPB, in 2013, sought to stamp out the dealer markups, which liberals and fair-lending advocates say contribute to discrimination against minorities. The bureau did not seek a formal rule banning the practice, but warned dealers that markups routinely violated lending laws and could lead to severe penalties.

Critics of dealer markups say that minorities are often charged higher dealer markups than white customers with similar credit profiles and have cited several studies bolstering that claim — including one produced by the CFPB.

The auto-lending policy underpinned several CFPB lawsuits against car dealers. The CFPB and Justice Department sued Ally Financial in December 2013 for close to $100 million in fines and damages for minority customers. The bureau also sued Honda and Toyota for tens of millions of dollars over similar charges

Defenders of the CFPB guidance warned that repealing it could lead to widespread discrimination against minorities. Liberal lawmakers and financial sector critics insist that the CFPB policy is a crucial check against racial biases that could cost vulnerable customers thousands of dollars.

“Financial institutions that make auto loans have an obligation not to discriminate against borrowers based on the color of their skin,” said Rep. Carolyn Maloney (D-N.Y.).

Republicans have dismissed the accusations of discrimination and panned the CFPB policy as an unjustified crusade against a standard financing tool. Advocates for auto dealers and their congressional allies said lenders were committed to fairness and that the CFPB had exploited a loophole.

“Laws should be based on sound data. Our laws should be carefully debated in public,” Rep. French Hill (R-Ark.) said. “We’re correcting that today, and the beneficiaries will be our constituents.”

Democrats and other advocates for strict financial sector regulation are also concerned about the precedent set by repealing an informal policy.

Since 2017, Republicans have used the Congressional Review Act to undo a slew of regulations issued under former President Obama. But all of those rules were approved in the waning days of the administration, as the CRA can only be used to repeal a regulation within a certain timeframe.

The guidance from the CFPB was approved in 2013 and was not issued as a formal rule, so it appeared to be safe from a repeal resolution.

That changed with a December ruling from Government Accountability Office that declared that regulatory guidance was covered under the law. The decision opened up the CFPB auto-lending policy and countless others to repeal.

Democrats have warned that repealing the auto-lending guidance would open the floodgates for Republicans to scrap critical consumer protections. 

The Leadership Conference, a nonprofit civil rights group said the guidance repeal “represents an unprecedented and unwise use of the CRA procedure.”

“The law was intended to allow Congress to block the implementation of new agency rules before their impact is felt — not guidances that have been in place for years,” wrote the group’s president, Vanita Gupta, in a Monday letter. 

It’s unclear what other informal rules Republicans could take aim at next. 

Sen. Pat Toomey (R-Pa.), who requested the December Government Accountability Office ruling, told The Hill last week that there were no current plans to target other agency policies.