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Under the authority granted by the Congressional Review Act, the House of Representatives passed a measure on May 8 to roll back an Obama-era rule on auto lending practices issued by the Consumer Financial Protection Bureau (CFPB). It should be noted that the rollback pertains to a set of administrative guidelines issued by the CFPB, not a law ratified by Congress.
The House vote was 234-175, reversing a 2013 rule established by the CFPB to stop auto lenders from charging higher fees to borrowers based on their religion, sex, race, or age. The vote follows a Senate vote in April to also repeal this measure. It will now go to President Donald Trump’s desk for his approval.
This rule was originally intended to limit discriminatory practices in the auto loan business and clarify that lenders offering loans via dealerships are responsible for any discriminatory and unlawful pricing, according to NPR.
The problem of discriminatory pricing cropped up around car dealers working with banks or credit unions to issue an auto loan. Once the lender issues an interest rate, the dealer is permitted to mark up the rate for its own compensation. However, that practice was scrutinized when it was found that dealers were illegally discriminating against certain demographics by charging higher markups based on factors outside of credit or finances.
With Tuesday’s vote overturning the auto lending guidance, some advocates expressed concern that auto lenders and dealers may price auto loans on conditions besides creditworthiness and income, reported CNBC.
Regardless, consumers can take some steps to help protect themselves. Here are some expert tips to consider when you’re buying a car.
Obtain preapproval: Before going to a car dealership, receive preapproval for an auto loan from a credit union, bank, or online lender. With preapproval in hand, this enables potential auto buyers to combat an unlawful markup.
Look for extras: Review auto loan details and ask questions regarding unnecessary extras. Costs can quickly add up and some loan features, such as extended warranties, might be less expensive to buy from vendors.
Shop around: Apply to several competing auto lenders directly to find the lowest rate. But when doing so, be wary of the credit implications. Make sure the applications run soft credit pulls as opposed to hard pull.
Watch for loan terms: Stay away from loan terms of 60-plus months for new cars and 36-plus month terms for used vehicles. Use an auto loan calculator to review the effect of changing loan terms on monthly payments and total interest paid.
Conduct research: Check consumer organizations for complaints about the lenders you’re thinking of borrowing from. If there are excessive complaints, you might consider taking your business elsewhere.
Author: Mike Brown
In his role at LendEDU, Mike uses data, usually from surveys and publicly-available resources, to identify emerging personal finance trends and tell unique stories. Mike’s work, featured in major outlets like The Wall Street Journal and The Washington Post, provides consumers with a personal finance measuring stick and can help them make informed finance decisions.