Auto-Lending Lemon Repeal – WSJ


Deregulation has been a major Republican policy success in the current Congress, and the GOP may not be done. Next up for the potential axe: The notorious auto-lending rule.

This is an Obama Administration classic. Recall that Dodd-Frank expressly prohibited the Consumer Financial Protection Bureau from regulating auto dealers. That didn’t stop former CFPB chief

Richard Cordray,

who used the back door of auto-financing to regulate dealers. He set about trying to show that minorities pay higher interest rates than whites on vehicle loans facilitated by car dealers.

But since dealers are barred by law from collecting data on race, Mr. Cordray used statistical models to guess the race of borrowers based on surnames and addresses. In 2013 the CFPB issued “guidance” requiring lenders and dealers to change their practices to account for “disparate impact” based on whether borrowers were, say, a


(black) or an


(must be white). The “guidance” ruse also let Mr. Cordray duck the rule-making process with its formal public-notice period.

The bureau proceeded to use the rule to charge discrimination and coerce settlements from auto lenders. Ally Bank of Detroit was bludgeoned into paying $80 million in damages and $18 million in penalties without being accused of a specific act of discrimination. In 2015 the CFPB extended this “guidance” to nonbank auto-finance companies.

Relief may finally be on the way thanks to Senator

Pat Toomey,

among others. Last year the Pennsylvania Republican asked the Government Accountability Office (GAO) to judge whether the guidance was the equivalent of a rule under the Congressional Review Act—the law Republicans have used to overturn more than a dozen

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The GAO took its time but on Dec. 5 confirmed that the auto-lender guidance is a rule under CRA. That finding gives Congress 60 legislative days (up to about May 10) to overturn the rule with simple majorities in the House and Senate. Kansas Republican

Jerry Moran

has introduced a repeal resolution, and we’re told Senate leaders will make that vote a priority.

Repeal should have bipartisan support given the reach of car dealers around the country. In November 2015 the House voted 332-96 to nullify the auto-lender rule, though the Senate never acted amid a filibuster threat. The days of GOP control of Congress may be numbered, so Republicans should pile up as many policy victories as possible while they can.

Appeared in the April 13, 2018, print edition.

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