CFPB’s Regulation of Auto Lenders Ripe With Abuse

Last week, the House Committee on Financial Services released the third in its series of reports outlining a string of missteps by the Consumer Financial Protection Bureau’s (CFPB) regulation of auto-lenders. After the recent Circuit Court’s ruling declaring the structure of the CFPB unconstitutional and congressional pressure to fire Director Richard Cordray, the state of the bureau’s legitimacy is seriously in question.

These three Financial Service reports bring to light additional questions surrounding the actions taken by the CFPB on its regulation of auto-financing.

If a consumer decides to finance their vehicle, they can do so through the auto-dealer. Dealerships often offer the most competitive rates on financing given the high volume of business the dealer brings to creditors. The CFPB determined that this practice ended in racial discrimination under disparate impact. But unlike disparate treatment, disparate impact holds a practice discriminatory if it results in a negative impact on a protected class, even if there was no intent to discriminate.

The first two reports examine the data with which the CFPB determined a discriminatory outcome in lending. Multiple CFPB counsels had advised Cordray that not only was the use of disparate impact a weak justification for pursuing a suit, but the data used to show the inequitable outcome came from a flawed model. Cordray marched forward with its regulatory enforcement anyway.

The third and most recent report shows Cordray may have even taken illegal action. When publishing the rule that gave the bureau authority to regulate these auto lenders, Cordary did not take advice of counsel to publish a list of affected institutions and reopen the rule’s public comment window. On top of these actions, the report highlights that under Supreme Court precedent the CFPB’s enforcement actions resting on disparate impact would not hold up to scrutiny.

While the bureau continues to regulate the life out of everything from auto lenders to community banks and mortgage lenders, consumers suffer from high costs and less choice. After repeated scandals, it’s time to gut the whole thing. Repeal the CFPB.


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