GOP’s regulatory fight goes to another level over car loans

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Senate Majority Leader Mitch McConnell and the GOP-led Senate voted Wednesday to block Obama-era guidance a consumer protection agency issued to help ensure lenders don’t charge blacks and Hispanics higher interest rates on car loans. | AP Photo

WASHINGTON — The GOP-led Senate voted Wednesday to block Obama-era guidance a consumer protection agency issued five years ago to help ensure lenders don’t charge blacks and Hispanics higher interest rates on car loans.

The vote was 51-47. Sen. Joe Manchin of West Virginia was the only Democratic lawmaker to side with Republicans in voting for the measure, which now must pass the House before it goes to President Donald Trump for his signature.

Republicans said that rescinding the guidance is necessary because it amounted to a backdoor attempt to regulate auto dealers. Congress expressly prohibited such regulation when establishing the consumer protection agency through passage of the Dodd-Frank Act in 2010.

The legislative battle extends beyond the terms of car loans, however. Opponents warned that the GOP’s fight against government regulations entered a new phase and the Senate vote could be the first of many efforts to nullify agency bulletins and guidance letters issued over the years. Such guidance conveys to the public how regulators interpret existing law and what steps industries should take to comply.

To block the guidance, the GOP is using what had been a rarely successful legislative tool to overturn regulations that were often years in the making. The Congressional Review Act gave Congress the ability to overturn recently issued federal rules with a simple majority of both chambers of Congress and approval of the president. Before Trump came into office, Congress had overturned only one federal rule over two decades using the tools available through the Congressional Review Act. Last year, it overturned 15 federal rules.

The GOP expanded on its use of the 1996 law to take on guidance the Consumer Financial Protection Bureau issued regarding certain car loans. Consumer groups called the GOP’s effort a “dangerous precedent” that will lead to uncertainty over whether agency interpretations of a law will be invalidated years after the fact.

But Republicans framed the issue as Congress coming to the rescue of businesses.

“The goal here is simple: We want to protect consumers and job creators from needless interference by the federal bureaucracy,” said Senate Majority Leader Mitch McConnell.

A range of trade groups representing bankers, car dealers and other businesses backed the GOP’s efforts.

Auto dealers often facilitate financing through a third-party lender. In some cases, the dealer will charge the customer an interest rate that is higher than what the third party agreed to charge. The lender then shares part or all of the extra profit with the dealer.

The CFPB said that the practice led to some minority customers paying higher interest rates than similar white borrowers. In its guidance, it highlighted the potential liability auto lenders face from discriminatory “dealer mark-ups” and how that can be avoided.

The agency followed that up with enforcement actions against Ally Bank, American Honda Finance Co., Fifth Third Bank, and Toyota Motor Credit, which resulted in millions of dollars being set aside to compensate minority borrowers.

The guidance has rankled lawmakers who considered it regulatory overreach and an attempt to go around the requirements agencies must follow for enacting regulations. The House passed bipartisan legislation to nullify the guidance in 2015, but the Senate didn’t take up the bill.

But critics didn’t give up. Sen. Pat Toomey, R-Pa., asked government auditors to review the matter. The Government Accountability Office determined that even general statements of policy qualify as a rule under the Congressional Review Act. That finding gave Congress a short window into early May to overturn the rule with simple majorities in both chambers.

Sen. Mike Crapo, the Idaho Republican who chairs the Committee on Banking, Housing and Urban Affairs, said the consumer protection bureau made significant changes to an important sector of the economy without allowing for public input. He said that disapproving the agency’s guidance will give consumers more options for financing autos while ensuring the CFPB abides by the congressional limits on its jurisdiction.

Sen. Sherrod Brown, D-Ohio, said that in repealing guidance issued five years ago Republicans were signaling they want to interfere with potentially thousands of other federal agency decisions going back two decades.

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