The CFPB released guidance in March 2013 stating that financial institutions are liable under the Equal Credit Opportunity Act for car loans acquired from dealers for exploitive and discriminatory practices associated with the loans. One potentially exploitive practice found with car loans is dealer interest markup. This occurs when a dealer increases the interest rate of a car loan provided by a financial institution and pockets the money generated from the interest increase. This interest markup can generate billions. This practice exploits consumers and disproportionately impacts consumers of color. The CFPB recommended making car loans fairer by having financial institutions devise different compensation structures for dealers in order to avoid dealer interest markups.
The Reforming CFPB Indirect Auto Financing Guidance Act is another in a string of attempts by congressmen to restrict the CFPB’s work. It also reflects a disregard for ensuring safe financial products for consumers. The bill seeks to “nullify” guidance set in place by the CFPB, guidance that holds financial institutions responsible for the money they lend through partnerships with car dealerships. The bill would also delay how quickly the CFPB can issue guidance.
The Reforming CFPB Indirect Auto Financing Guidance Act is part of a larger movement to prevent federal regulators from bringing fairness into the consumer finance market. Another bill before the HFSC, HR 766, the “Financial Institution Customer Protection Act of 2015,” seeks to limit the Department of Justice’s (DOJ) Operation Choke Point, which enforces banks’ obligations to prevent money laundering and payment fraud. Most notably, the bill would eliminate the DOJ’s ability to bring cases against several financial institutions, such as CommerceWest Bank, Plaza Bank, and Four Oaks Bank & Trust, for their role in enabling scammers to access consumers’ bank accounts. We are disappointed that Rep. Hultgren voted in favor of HR 766, and we applaud Rep. Foster for voting against it. [Did it pass HFSC?] Woodstock Institute urges Congress to oppose this bill, as it would set a precedent that banks’ interests override consumers’ interests.
A fair consumer market is a market where and safe products are available and exploitive lenders and financial institutions are brought to justice. HR 1731 and HR 766 do not advance the creation and preservation of a fair consumer finance market.