Congress passed a measure in May to roll back guidance on auto credit that had been issued by the Consumer Financial Protection Bureau (“CFPB”). The guidance, issued in 2013, was intended to limit discriminatory practices in the auto lending business. Congress repealed the guidance using the Congressional Review Act, an obscure law that allows congress to undo rules issued by administrative agencies and government regulators.
While agencies often release informal guidance to inform stakeholders of how to comply with the law, Republicans in Congress said that the CFPB guidance in this instance was actually a formal rule that was being improperly used to regulate auto dealers, which Congress prohibited the CFPB from doing.
Back in 2013, the CFPB issued the “guidance” instead of proposing a formal rule. The guidance was allegedly intended to warn auto finance sources to adhere to fair-lending laws that prohibit discrimination on the basis of race, color, religion, age and other classes. The CFPB at that time threatened to use “all appropriate regulatory tools” to ensure that auto lending was fair. The CFPB then began to proceed against various finance sources using a “disparate impact” theory, claiming that creditors that buy retail installment contracts from dealers were liable for the dealers’ credit pricing decisions. Using suspect data to attempt to identify protected classes of borrowers, the CFPB went on to bring a number of high-profile enforcement actions and to collect hundreds of millions of dollars in penalties and restitution.
The CFPB heeded the May Congressional mandate and rescinded its “guidance”. Though this development is perceived to be a huge victory for dealers and creditors, the CFPB has publicly stated that it will continue to fight unlawful discrimination and to vigorously enforce fair lending laws.
It is yet to be seen what the practical impacts on dealers will ultimately be as a result of the withdrawal of the CFPB’s anti-discrimination guidance. It is imperative that dealers remain informed of all developments in the area of fair lending. Questions concerning legal compliance should be directed to your dealer lawyer.