Providing for Congressional Disapproval of A Rule Submitted By Bureau of Consumer Financial Protection
Floor Speech
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Mr. CRAPO. Mr. President, I rise today to offer my support for Senator Moran and Senator Toomey's resolution using the Congressional Review Act to disapprove of the CFPB's 2013 auto finance guidance.
It is important that Congress disapprove this guidance because it was an attempt by the CFPB to make substantive policy changes through guidance rather than through the rulemaking process governed by the Administrative Procedure Act. It was also an attempt to regulate auto dealers who were explicitly exempted from the CFPB's supervision and regulation under the Dodd-Frank Act.
According to an internal CFPB memo, the CFPB rejected developing a rule using its statutory authority to regulate unfair, deceptive, and abusive acts and practices because ``the potentially unfair, deceptive, or abusive actions are ostensibly those of dealers, over whom we have no regulatory authority.''
As the Wall Street Journal editorial board noted, ``That didn't stop former CFPB chief Richard Cordray, who used the back door of auto- financing to regulate dealers.''
Make no mistake--the CFPB's decision to develop guidance instead of a rule was intentional. At Senator Toomey's request, the Government Accountability Office evaluated the bulletin to see if it should have been submitted to Congress as required by the Congressional Review Act.
The GAO concluded:
The Bulletin is a general statement of policy designed to assist indirect auto lenders to ensure that they are operating in compliance with ECOA and Regulation B, as applied to dealer markup and compensation practices. As such, it is a rule subject to the requirements of the CRA.
Plainly, the CFPB failed to follow the law by failing to submit the bulletin to Congress. Furthermore, issuing guidance instead of formulating a rule allowed the CFPB to sidestep important aspects of the administrative rulemaking process that provide for accountability, transparency, and thorough evaluation.
Federal agency rules are governed by the Administrative Procedure Act, which generally requires an agency to publish a notice of a rulemaking, take comments from the public, and establish an effective date for a rule. Notice and comment is a vital step in the process because it gives individuals and businesses subject to rulemakings the opportunity to provide feedback on the practical effect of a rule's implementation, and it allows an agency to adjust the rule as necessary to avoid any undue consumer harm. In contrast, bulletins generally do not afford the public an opportunity to lend their voice to the process and have historically been used by Federal agencies to simply restate existing law to aid covered companies' compliance.
The CFPB's indirect auto bulletin represents a departure from typical Federal agency practice, as reflected in the GAO's conclusion that it is a rule subject to CRA requirements.
Without the opportunity for public comment and the ability for the bulletin to be revised to avoid any unintended consequences, auto dealers' incentive to act as an intermediary has been greatly diminished. As a result, consumers will be inconvenienced and have fewer and more expensive financing options when shopping for a vehicle.
Some people opposed to this resolution are concerned about what this means for regulatory guidance more generally. I would note that almost all guidance issued by agencies may qualify as a rule under the Congressional Review Act and must be submitted to Congress for potential disapproval. The CRA's definition of a rule includes, with some limited exceptions, ``the whole or a part of an agency statement of general or particular applicability and future effect designed to implement, interpret, or prescribe law or policy.''
Explaining the Congressional Review Act's definition of a rule, the GAO said: ``This definition is broad, and includes both rules requiring notice and comment rulemaking and those that do not, such as general statements of policy.''
This particular bulletin, according to GAO, ``advises the public prospectively of the manner in which the CFPB proposes to exercise its discretionary enforcement power and fits squarely within the Supreme Court's definition of a statement of policy.''
Congress has the power to overturn any agency rule. Under the Congressional Review Act, Congress has the power to overturn agency rules using an expedited procedure. There is nothing special about guidance issued by the agencies that should cause people to be concerned, especially a rule masquerading as guidance. Article I grants Congress legislative power, and by disapproving this rule, we are ensuring that the CFPB cannot issue a rule that is substantially the same as the one it just tried to issue.
There have also been questions raised regarding the flawed methodology the CFPB used in its supervisory and enforcement activities based on this bulletin to allege discriminatory auto loan pricing.
In November 2015, the House Financial Services Committee's majority staff issued a report exploring the CFPB's approach to enforcing the ECOA against indirect auto lenders. The report focuses on the controversial use of disparate impact theory and the CFPB's use of a flawed statistical methodology, which only takes into account an individual's last name and ZIP Code in order to determine a probability for race and ethnicity. This approach is less reliable than other, more proven methodologies. A November 2014 study estimated that only 24 percent of African Americans and 50 percent of Asians were correctly identified using this methodology.
In light of such significant concerns, the House introduced legislation in 2015 to nullify the effect of the bulletin and place guardrails around the development of any future indirect auto lending guidance. That bill garnered significant bipartisan support, passing the House by a vote of 332 to 96, including 88 Democrats.
This resolution has attracted substantial support, as well, including from 12 different organizations involved with helping consumers buy a vehicle and an endorsement via a Statement of Administration Policy from the White House.
For example, the chamber of commerce notes that ``internal documents [at the CFPB] demonstrate that even [CFPB] Bureau staff found the data and methodology intended to support the rule `unconvincing.'''
The Independent Community Bankers of America notes that ``since the issuance of the Bulletin, many community bankers have reported added difficulty in meeting the varying borrowing needs of their customers based on confusing and overly-burdensome guidance.''
The National Association of Auto Dealers notes that ``extensive bipartisan congressional engagement has identified several reasons to disapprove the CFPB rule/guidance, including a lack of due process, concerns about the CFPB's failure to adhere to Section 1029 of Dodd- Frank, and the negative impact on consumers and small business dealers.''
The American Bankers Association said that ``the regulatory and enforcement uncertainty caused by this Guidance has caused many banks to exit or to curtail their indirect auto lending, which limits consumer choice and increases the cost of credit.''
The American Financial Services Association said that ``the guidance is harmful because it pressures vehicle finance companies to limit consumers' ability to receive discounted auto loans from dealers. Furthermore, the guidance threatens to raise credit costs and push marginally creditworthy consumers out of the vehicle financing market, and has the potential to harm the vehicle industry and its associated U.S. Res. 57.
Dear Senator: The American Financial Services Association (AFSA) writes to express our strong support for S.J. Res. 57, which would rescind the Consumer Financial Protection Bureau's (CFPB) 2013 vehicle finance guidance. The guidance is harmful to American consumers and businesses, and the CFPB acted without accountability in its issuance of the guidance.
The guidance is harmful because it pressures vehicle finance companies to limit consumers' ability to receive discounted auto loans from dealers. Furthermore, the guidance threatens to raise credit costs and push marginally creditworthy consumers out of the vehicle financing market, and has the potential to harm the vehicle industry and its associated U.S. jobs.
The Bureau issued the guidance without any public comment, consultation with CFPB's sister agencies, or transparency. The CFPB issued the policy, which directed fundamental market changes, without a transparent rulemaking process to assess the impact on consumers.
In the 114th Congress, the House overwhelming approved H.R. 1737, the ``Reforming CFPB Indirect Auto Financing Guidance Act,'' a bill rejecting the vehicle finance guidance similar to S.J. Res 57. The legislation passed the House by a bipartisan vote of 332-96, including 88 Democrats.
S.J. Res. 57 is a narrow resolution that preserves fair lending protections. It does not hinder enforcement of fair lending laws or regulations, which AFSA and its members strongly support. In fact, even the House Financial Services Committee minority report accompanying H.R. 1737 stated that, ``H.R. 1737 does not alter regulated entities' obligations under the Equal Credit Opportunity Act (ECOA) or the CFPB's examination or enforcement activity pursuant to ECOA.'' Proponents of S.J. Res. 57 take fair credit laws very seriously, and the resolution protects these laws and their enforcement to safeguard equal opportunity in vehicle financing.
Please lend your support S.J. Res. 57, both as a cosponsor and an affirmative vote on the Senate floor. If you need more information, please contact me. Sincerely, Bill Himpler, Executive Vice President, American Financial Services Association. ____ National Automotive Dealers Association, Tysons, VA, April 13, 2018. Hon. Mitch McConnell, Majority Leader, U.S. Senate, Washington, DC. Hon. Charles Schumer, Minority Leader, U.S. Senate, Washington, DC.
Dear Leader McConnell and Leader Schumer: On behalf of America's 16,500 franchised new car and truck dealers and the 1.1 million people they employ, I am writing in strong support of S.J. Res. 57, a joint resolution providing for Congressional disapproval of the rule by the Consumer Financial Protection Bureau (CFPB) relating to indirect auto lending. Despite Congress exempting most auto dealers from the CFPB's jurisdiction under Section 1029 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the CFPB's rule, issued as ``guidance,'' operates to reduce market competition and take away a consumer's ability to receive a discounted auto loan in the showroom. Access to affordable credit is essential to consumers, and the ability of a dealer to discount credit is often necessary to meet auto buyers' needs.
S.J. Res. 57 is a narrowly-tailored joint resolution that does not amend or change any fair credit law or regulation or impair their enforcement. The legislation is a measured response to the CFPB's attempt to regulate the $1.1 trillion auto financing market, avoid congressional scrutiny by issuing ``guidance,'' and impose a new policy without necessary procedural safeguards.
Congress has considered this issue thoroughly during the past several years through oversight and legislative action. The Senate Banking, Housing and Urban Affairs Committee raised the matter during two CFPB oversight hearings. Moreover, by an overwhelmingly bipartisan vote of 332-96, including 88 Democrats, in 2015 the House passed H.R. 1737, the ``Reforming CFPB Indirect Auto Financing Guidance Act,'' which would have rescinded the CFPB auto finance guidance.
The extensive bipartisan congressional engagement has identified several reasons to disapprove the CFPB rule/ guidance, including a lack of due process, concerns about the CFPB's failure to adhere to Section 1029 of Dodd-Frank, and the negative impact on consumers and small business dealers. In particular:
The rule/guidance was issued without any prior notice, opportunity for public comment, or consultation with the federal agencies Congress authorized to regulate dealers.
Indirect auto lenders were pressured by the rule/guidance to eliminate a consumer's ability to receive a discount on auto credit by a dealer, which would have fundamentally altered the entire auto finance market. This new policy would have limited market competition, raised credit costs for auto buyers, and thereby pushed some marginally creditworthy borrowers out of the credit market. The CFPB admitted to the Senate that it did not analyze the impact of the rule/ guidance on consumers.
Despite Congress' clear determination in Dodd-Frank to place regulatory oversight of auto retailers with the Federal Reserve Board, Federal Trade Commission and Department of Justice (DOJ), the rule/guidance assumed the CFPB could unilaterally assert jurisdiction over dealer discounts and the manner of dealer compensation for auto credit.
The rule/guidance was based on a flawed method for identifying the background of consumers that relied solely on a borrower's zip code and last name. A non-partisan study of the CFPB's policy found a 41 percent error rate for classifying the background of a significant group of consumers, and even the CFPB's own review revealed a 20 percent error rate for the same group. (This non-partisan study was never rebutted by the CFPB.)
The rule/guidance failed to account for legitimate business factors that can affect finance rates (such as discounting a rate due to the presence of a competing offer or to accommodate a consumer's monthly budget constraint) to ensure that borrowers being compared are similarly situated.
The auto industry takes fair credit laws very seriously and strongly condemns discrimination. In furtherance of this commitment, NADA, joined by the other national dealer associations, developed and continues to promote a voluntary fair-credit compliance program, based on an effective DOJ model that preserves consumer discounts on credit for legitimate business reasons. Unfortunately, the CFPB, refusing to work with the Federal regulators that have jurisdiction over dealers, failed to adopt the DOJ-based fair credit alternative as an appropriate method to mitigate fair credit risks in indirect auto lending.
Enactment of S.J. Res. 57 is important to keep auto loans affordable and accessible for consumers. America's franchised auto dealers urge a ``Yes'' vote on S.J. Res. 57 should it be considered by the Senate. Thank you for your consideration. Sincerely, Peter K. Welch, President and CEO. --------------------------------------------------------------------------- --------------------------------------------------------------------------- American Bankers Association, Washington, DC, April 17, 2018. Hon. Mitch McConnell, Majority Leader, U.S. Senate, Washington, DC. Hon. Charles Schumer, Minority Leader, U.S. Senate, Washington, DC.
Dear Majority Leader McConnell and Minority Leader Schumer: On behalf of the members of the American Bankers Association (ABA), I write to express our support for S. J. Res. 57, a resolution to disapprove BCFP Bulletin No. 2013-02, ``Indirect Auto Lending and Compliance with the Equal Credit Opportunity Act'' (Bulletin).
According to the statements of the Bureau of Consumer Financial Protection (Bureau) at the time of issue, the Bulletin was to provide lenders with fair lending compliance ``guidance'' in situations when lenders permit automobile dealers flexibility to set automobile loan interest rates. In practice, however, the Bulletin was applied as far more than guidance, asserting with regulatory effect, highly controversial legal theories and methodologies to allege that banks and finance companies that purchase motor vehicle installment sales contracts may be liable under the Equal Credit Opportunity Act (ECOA) for purported, but undemonstrated racial disparities in the interest rates that the automobile dealers charged consumers.
ABA strongly believes that every automobile customer deserves to be treated fairly, and that there is no room for illegal discrimination of any kind in automobile financing. However, the Bulletin was issued without the opportunity for public comment on its legal underpinnings, critical review of its assumption and bases, and its impact on consumer access to convenient and affordable credit.
The regulatory and enforcement uncertainty caused by this Guidance has caused many banks to exit or curtail their indirect auto lending, which limits consumer choice and increases the cost of credit.
ABA urges the Senate to adopt S.J. Res. 57. Sincerely, James C. Ballentine. ____ Chamber of Commerce of the United States of America, Washington, DC, April 17, 2018.
To Members of the United States Senate: The U.S. Chamber of Commerce urges you to support S.J. Res. 57, a Congressional Review Act resolution to undo the Bureau of Consumer Financial Protection's action on indirect auto lending. The Chamber will consider including votes on, or in relation to, S.J. Res. 57 in our How They Voted scorecard.
In 2013, the Bureau issued a ``Bulletin'' that imposed new requirements under the Equal Credit Opportunity Act (ECOA) to address purported discrimination. The Bulletin established that indirect lenders--firms that are never face-to-face with borrowers and only purchase contracts after-the-fact from auto dealers--could be liable for discrimination.
The Chamber abhors discrimination in all its forms, including in the financial service and auto lending sectors.
However, the Bureau provided little concrete evidence of problems that the Bulletin was intended to address. In fact, internal documents demonstrate that even Bureau staff found the data and methodology intended to support the rule ``unconvincing.''
We thank Senator Moran and Senator Toomey for their leadership to resolve this overreach by the Bureau and for engaging the Government Accountability Office (GAO), which determined on December 5, 2017, that the Bulletin is in fact a ``rule'' for purposes of the Congressional Review Act.
Moreover, we applaud the work of the House Financial Services Committee, which released three reports on the topic.
The Chamber believes the Bureau--like all other federal agencies--should follow the Administrative Procedure Act when issuing guidance and promulgating regulations. Agency actions should be based on clear legislative authority, solid data, and proper public input. That is why the Chamber strongly supports the Portman-Heitkamp ``Regulatory Accountability Act,'' which would modernize the rulemaking and guidance processes for the first time since 1946.
The Chamber urges you to reject the Bureau's Bulletin and to support S.J. Res. 57. Sincerely, Jack Howard, Senior Vice President, Congressional and Public Affairs. ____ Independent Community Bankers of American
Dear Majority Leader McConnell and Minority Leader Schumer: On behalf of the nearly 5,700 community banks represented by ICBA, I write today to urge all members of the Senate to support S.J. Res. 57, a joint resolution under the Congressional Review Act (CRA) introduced by Sen. Jerry Moran (R-Kan.) to overturn the Consumer Financial Protection Bureau's (CFPB) 2013 auto finance guidance set forth in CFPB Bulletin 2013-02, titled ``Indirect Auto Lending and Compliance with the Equal Credit Opportunity'' (Bulletin).
S.J. Res. 57 follows the U.S. Government Accountability Office's (GAO's) determination that the ``guidance'' outlined in the Bulletin is a ``rule'' subject to CRA. Sen. Pat Toomey (R-Pa.) requested that GAO determine whether the Bulletin was subject to CRA. Since the issuance of the Bulletin, many community bankers have reported added difficulty in meeting the varying borrowing needs of their customers based on confusing and overly-burdensome guidance. For this reason, ICBA supports this effort to overturn this harmful guidance administered by the CFPB.
ICBA and America's community banks thank you for your consideration. Sincerely, Camden R. Fine, President & CEO. ____ NADA, Auto Alliance, American Financial Services Association, The National RV Dealers Association, National Independent Automotive Dealers Association, Recreation Vehicle Industry Association, American International Automotive Dealers, National Auto Auction Association, Motorcycle Industry Council. April 16, 2018.
Dear Senator: We, the undersigned organizations which represent businesses that make, sell, finance, auction and service vehicles are writing to express our strong support for S.J. Res. 57, a joint resolution to disapprove the Consumer Financial Protection Bureau's (CFPB) 2013 auto finance guidance. The CFPB guidance pressures indirect auto lenders to limit a consumer's ability to receive a discounted auto loan from a dealer, resulting in less competition, higher financing rates, and loss of credit access for many vehicle buyers.
Access to affordable credit, including a dealer's ability to discount credit, is essential to meet the transportation needs of our customers. Since more than 80 percent of vehicle purchases are financed, adequate retail credit is vital to facilitate vehicle sales. The current system benefits consumers as dealers' access to multiple lending institutions frequently allows dealers to help consumers, including the marginally credit worthy who often have limited options, secure financing at competitive interest rates.
The CFPB auto lending policy, issued through a guidance, directed fundamental market changes without a transparent rulemaking process to assess the impact on consumers. This guidance was issued without any public comment, consultation with CFPB's sister agencies (including those that Congress authorized to regulate auto dealers), or transparency. Indeed, by the CFPB's own admission, the agency did not study the impact of its guidance on consumers.
This controversial guidance also enabled the agency to skirt Congress' express prohibition on its exercise of authority over auto, recreational vehicle, and motorcycle retailers engaged in indirect lending, (Sec. 1029(a) of Dodd- Frank). Under the Dodd-Frank law dealers continue to be regulated by that Federal Reserve Board, Federal Trade Commission and Department of Justice, as well as rigorous state laws and regulations.
The auto industry takes fair credit laws extremely seriously and has proactively promoted a comprehensive compliance program to enhance fair credit lending. Under the Department of Justice (DOJ) modeled program, a dealer can reduce the consumer's APR by documenting one of seven ``legitimate business reasons'' identified by the DOJ as a legitimate reason for a dealer to discount credit. Legitimate business reasons include ``meeting or beating'' a competitive offer that is available to the customer from another dealer or lender. Preserving this vigorously competitive market for vehicle financing lowers the cost of auto credit for consumers across the board. When Congress created the CFPB, surely it did not intend the agency to use its power to stop vehicle retailers from offering consumers discounts.
In a rejection of the auto finance guidance, last Congress the House overwhelming approved a bill similar to S.J. Res. 57, H.R. 1737, the ``Reforming CFPB Indirect Auto Financing Guidance Act.'' H.R. 1737, which would have rescinded the guidance, passed by a bipartisan vote of 332-96, including 88 Democrats (November 18, 2015).
Despite the House's overwhelmingly bipartisan approval of the legislation and additional bipartisan efforts in the Senate to seek a resolution on this issue, the CFPB rebuffed extensive industry efforts to work together to fashion a solution that would preserve discounted auto loans by dealers within the parameters of the DOJ-based model. In addition, the CFPB continued to pressure finance sources to limit a dealer's ability to discount credit based on a deeply flawed method for measuring lender compliance with fair lending laws.
S.J. Res. 57 is narrow and purely a process resolution that preserves fair lending protections and does not hinder enforcement of fair lending laws or regulations. In fact, even the House Financial Services Committee minority report accompanying H.R. 1737 stated that ``H.R. 1737 does not alter regulated entities' obligations under the Equal Credit Opportunity Act (ECOA) or the CFPB's examination or enforcement activity pursuant to ECOA.'' Proponents of S.J. Res. 57 take fair credit laws very seriously, and this joint resolution protects these laws and their enforcement to safeguard equal opportunity in vehicle financing.
Senators should disapprove the auto finance guidance that operates to eliminate dealer discounts, threatens to raise credit costs and push marginally creditworthy consumers out of the vehicle financing market, and harms the vehicle industry and its associated U.S. jobs. Vehicle sales play an important role in the economy, as they constitute almost 20 percent of all retail spending in the U.S. Nationwide the vehicle industry provides jobs for more than 7 million workers and their families. It is in the best interest of consumers, dealers, and vehicle manufacturers to keep vehicle financing competitive and affordable.
Keeping auto financing competitive and affordable is not only warranted, it is essential for the vehicle industry and its customers. That is why similar legislation easily passed the House, and why the Senate should pass S.J. Res. 57.
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Mr. CRAPO. Finally, President Trump's Statement of Administration Policy also endorses this resolution. I am going to read a few highlights from the statement.
This bulletin limits the ability of auto dealers to offer auto loans to their customers and was not issued pursuant to notice-and-comment rulemaking. As a result, the CFPB failed to allow the public to comment before it made significant changes to an important sector of the economy. Dodd-Frank explicitly excludes the regulation of auto dealers from the CFPB's jurisdiction. Disapproving this bulletin, therefore, would provide consumers with more options for auto financing while ensuring that the CFPB abides by congressional limits on its jurisdiction.
This rule should be disapproved, and any future action on the matter should go through the appropriate rulemaking process established by Congress. If this rule stands, banks, credit unions, and finance companies holding nearly $1.1 trillion in outstanding loans will needlessly face significant liability, and the ability of auto dealers to play a valuable role by matching buyers and lenders will be diminished.
I urge my colleagues to support this resolution.
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