WASHINGTON—Twenty-three different civil rights groups have signed a letter to Congress expressing their opposition to a bill that would stop the CFPB from cracking down in any way on indirect auto loans.
The groups’ response was organized by the Leadership Conference on Civil and Human Rights, and follows the introduction of HR 1737, the Reforming CFPB Indirect Auto Financing Guidance Act.
“The sole purpose of this bill is meant to undermine the ability of the Consumer Financial Protection Bureau (CFPB) to enforce laws against discrimination in auto lending,” the letter states. “In our view, a vote for H.R. 1737 is a vote to condone discrimination in the auto lending market.”
The letter suggests that for at least two decades financial services regulators have known about discrimination in auto finance, and that the CFPB is the first of those regulators to “address this discrimination and its underlying cause, dealer interest rate markups. Car dealers receive a substantial bonus from lenders for increasing the interest rate above that for which the borrower otherwise qualifies.”
The civil rights groups cited a Center for Responsible Lending estimate from 2009 that found consumers who took out car loans that year will pay an additional $25.8-billion in additional interest as the result of mark-up over the buy rate.
During the recent CUNA Lending Council meeting several auto dealers and credit unions indicated that they have all moved away from buy-rate and deal solely in flats.
“Because of that history, and with current data showing continued discrimination, the CFPB has issued guidance telling lenders that they could eliminate the risk of fair lending violations by paying compensation to dealers in ways that do not involve manipulations of the interest rate,” the civil rights groups said in their letter to Congress. “If, however, lenders chose to continue allowing dealers to increase the interest rate for compensation, then the lender would need to take steps to ensure that discrimination does not occur. In short, the CFPB’s guidance acknowledges something we have known for a long time: pricing discretion leads to discrimination.
“Members of Congress should not be mistaken, however: the real effect of H.R. 1737 is to undermine the ability of the CFPB to root out discrimination, something that has no place in our lending markets,” the letter continues. “Congress should be applauding the CFPB’s efforts, not trying to stop them.”
The civil rights groups added that they remain “troubled” that the bill is just the latest in several legislative efforts to “undermine” the CFPB.