The Consumer Financial Protection Bureau’s (CFPB) auto lending rules were fashioned to protect consumers who had indirect auto loans financed by banks through a dealership. The U.S. Senate Banking Committee is now planning to repeal those auto lending rules, according to Republican Pat Toomey, who sits on the Senate committee.
What Rules Are Being Repealed?
Five years ago, the CFPB slapped limits on the markups of the loans and the amount of compensation the dealers received. These regulations were particularly targeted at borrowers with a certain credit score.
Back then, Richard Cordray, who was director of the CFPB at that time, said the bureau felt compelled to implement these rules because of the discriminatory auto lending they uncovered.
“Nonbank auto finance companies extend hundreds of billions of dollars in credit to American consumers, yet they have never been supervised at the federal level,” Cordray said at the time. Cordray went on to assert that those rules would allow all consumers to be treated fairly when securing an auto loan.
While that was the original initiative, the direction of the CFPB has been changing as a whole as well as the general attitude towards consumer regulation.
Signals of these changes began cropping up ever since the 2016 Presidential election. To that end, Cordray, who was originally appointed under the Obama administration, announced his resignation as CFPB Director in November 2017.
The recent moves by the Senate Banking Committee further indicate the movement to fewer regulations. Toomey began in October to challenge the auto rules. It was only recently he confirmed the committee was planning to do away with them entirely.
What That Means for Consumers
The CFPB’s rules were meant to protect consumers from predatory lending practices in the automobile sector. Without those rules in place, consumers lack federal oversight and protection if they are being treated unfairly when pursuing an automobile loan. It also spells problems for anyone who may not understand the average industry rates or basic details of an auto loan.
Without these rules, it means two borrowers could be expected to pay different amounts for the same vehicle’s financing option.
For instance, an investigation by the National Fair Housing Alliance into discriminatory auto lending revealed white borrowers with lower credit scores were given cheaper financing options than non-white consumers with better credit scores.
For many households, purchasing an automobile is still considered a huge expense, and predatory lending makes it an even bigger expense than it has to be for people who need a vehicle to get to their jobs.
The investigation uncovered the non-white shoppers would have paid an average of $2,662 more for their vehicle than the white shoppers who had lower credit scores. And in 75 percent of the cases, the white shoppers were given more financing choices than the non-white shoppers.
This investigation drew comments from civil and economic rights organizations about the predatory lending problem plaguing the country.
“Years of data show that unfair, racially discriminatory treatment of consumers is a growing problem in the auto lending industry,” Mike Calhoun, President of the Center for Responsible Lending, said in a statement.
Calhoun said investigations like that highlight the need to keep any laws protecting citizens from predatory lending in the auto industry in place.