April 18, 2018
Chairman Crapo on the CFPB Auto Lending CRA
WASHINGTON - Idaho Senator Mike Crapo, Chairman of the Senate Banking Committee, delivered remarks on the Senate Floor today, encouraging his colleagues to support S.J. Res. 57, a Congressional Review Act Resolution to disapprove the CFPB's 2013 Auto Bulletin.
Senator Crapo's remarks, as prepared, are below.
President, I rise today to offer my support for Senator Moran’s and Toomey’s
resolution using the Congressional Review Act to disapprove the CFPB’s 2013
auto finance guidance.
important that Congress disapprove this guidance because it was an attempt by
the CFPB to make substantive policy changes through guidance rather than
through the rulemaking process governed by the Administrative Procedures Act.
also an attempt to regulate auto dealers who were explicitly exempted from CFPB
supervision and regulation under the Dodd-Frank Act.
to an internal CFPB memo, the CFPB rejected developing a rule using its
statutory authority to regulate unfair, deceptive, and abusive acts and
practices because “the potentially unfair, deceptive, or abusive actions are
ostensibly those of the dealers, over whom we have no regulatory authority.”
Wall Street Journal Editorial Board noted, “That didn’t stop former CFPB chief
Richard Cordray, who used the back door of auto-financing to regulate dealers.”
mistake, the CFPB’s decision to develop guidance instead of a rule was
Senator Toomey’s request, the Government Accountability Office evaluated the
bulletin to see if it should have been submitted to Congress as required by the
Congressional Review Act.
concluded, ‘the Bulletin is a general statement of policy designed to assist
indirect auto lenders to ensure that they are operating in compliance with ECOA
and Regulation B, as applied to dealer markup and compensation practices. As
such, it is a rule subject to the requirements of the CRA.’
the CFPB failed to follow the law by failing to submit the bulletin to Congress.
issuing guidance instead of formulating a rule allowed the CFPB to side-step
important aspects of the administrative rulemaking process that provides for
accountability, transparency, and thorough evaluation.
agency rules are governed by the Administrative Procedures Act, which generally
requires an agency to publish notice of a rulemaking, take comments from the
public, and establish an effective date for a rule.
and comment is a vital step in the process because it gives individuals and
businesses subject to rulemakings the opportunity to provide feedback on the
practical effect of a rule’s implementation and allows an agency to adjust the
rule as necessary to avoid any undue consumer harm.
contrast, bulletins generally do not afford the public an opportunity to lend
their voice to the process and have historically been used by federal agencies
to simply restate existing law to aid covered companies’ compliance.
CFPB’s indirect auto bulletin represents a departure from typical federal
agency practice, as reflected in the GAO’s conclusion that it is a rule subject
to CRA requirements.
the opportunity for public comment and the ability for the bulletin to be
revised to avoid any unintended consequences, auto dealers’ incentive to act as
an intermediary has been greatly diminished.
result, consumers will be inconvenienced and have fewer and more expensive
financing options when shopping for a vehicle.
people opposed to this resolution are concerned about what this means for regulatory
guidance more generally.
note that almost all guidance issued by agencies may qualify as a ‘rule’ under
the Congressional Review Act and must be submitted to Congress for potential
CRA’s definition of a ‘rule’ includes, with some limited exceptions, ‘the whole
or a part of an agency statement of general or particular applicability and
future effect designed to implement, interpret, or prescribe law or policy.’
the Congressional Review Act’s definition of a ‘rule,’ the GAO said ‘this
definition is broad, and includes both rules requiring notice and comment
rulemaking and those that do not, such as general statements of policy.’
particular bulletin, according to GAO, ‘advises the public prospectively of the
manner in which the CFPB proposes to exercise its discretionary enforcement
power and fits squarely within the Supreme Court’s definition of a statement of
has the power to overturn any agency
the Congressional Review Act, Congress has the power to overturn agency rules
using an expedited procedure.
nothing special about ‘guidance’ issued by agencies that should cause people to
be concerned, especially a ‘rule’ masquerading as guidance.
I grants Congress legislative power and by disapproving this rule we are
ensuring that the CFPB cannot issue a rule that is substantially the
have also been questions raised regarding the flawed methodology the CFPB used
in its supervisory and enforcement activities based on this bulletin to allege
discriminatory auto loan pricing.
November 2015, the House Financial Services Committee’s majority staff issued a
report exploring the CFPB’s approach to enforcing ECOA against indirect auto
report focuses on the controversial use of disparate impact theory and the
CFPB’s use of a flawed statistical methodology, which only takes into account
an individual’s last name and zip code in order to determine a probability for
race and ethnicity.
approach is less reliable than other, more proven methodologies.
November 2014 study estimated that only 24 percent of African Americans and 50
percent of Asians were correctly identified using this methodology.
of such significant concerns, the House introduced legislation in 2015 to
nullify the effect of the bulletin and place guardrails around the development
of any future indirect auto lending guidance.
bill garnered significant bipartisan support, passing the House by a vote of
332 to 96, including 88 Democrats.
resolution has attracted substantial support, including from 12 different
organizations involved with helping consumers buy a vehicle, and an endorsement
via Statement of Administration Policy from the White House.
example, the Chamber of Commerce notes that ‘internal documents [at the CFPB]
demonstrate that even Bureau staff found the data and methodology intended to
support the rule unconvincing.’
Independent Community Bankers of America notes that ‘Since the issuance of the
Bulletin, many community bankers have reported added difficulty in meeting the
varying borrowing needs of their customers based on confusing and
National Association of Auto Dealers notes that ‘extensive bipartisan
congressional engagement has identified several reasons to disapprove the CFPB
rule/guidance, including a lack of due process, concerns about the CFPB’s
failure to adhere to Section 1029 of Dodd-Frank, and the negative impact on
consumers and small business dealers.’
Bankers Association says, ‘The regulatory and enforcement uncertainty caused by
this Guidance has caused many banks to exit or curtail their indirect auto
lending, which limits consumer choice and increases the cost of credit.’
American Financial Services Association says that ‘The guidance is harmful
because it pressures vehicle finance companies to limit consumers’ ability to
receive discounted auto loans from dealers. Furthermore, the guidance threatens
to raise credit costs and push marginally creditworthy consumers out of the
vehicle financing market, and has the potential to harm the vehicle industry
and its associated U.S. jobs.’
time, I ask permission to enter into the record these five letters, as well as a
joint letter from the National Auto Dealers Association, the National RV
Dealers Association, the American International Automobile Dealers, the Auto
Alliance Driving Innovation, the National Independent Automobile Dealers
Association, the National Auto Auction Association, the American Financial
Services Association, the Recreational Vehicle Industry Association, and the
Motorcycle Industry Council all expressing their strong support for S.J. Res.
President Trump’s Statement of Administration Policy also endorses this
going to read a few highlights from the Statement: ‘This bulletin limits the
ability of auto dealers to offer auto loans to their customers and was not
issued pursuant to notice-and-comment rulemaking. As a result, the CFPB failed to allow the
public to comment before it made significant changes to an important sector of
explicitly excludes the regulation of auto dealers from the CFPB’s
jurisdiction. Disapproving this
bulletin, therefore would provide consumers with more options for auto
financing while ensuring that the CFPB abides by congressional limits on its
President, this rule should be disapproved and any future action on the matter
go through the appropriate rulemaking process established by Congress.
rule stands, banks, credit unions, and finance companies holding nearly $1.1
trillion in outstanding loans will needlessly face significant liability, and
the ability of auto dealers to play a valuable role by matching buyers and
lenders will be diminished.
my colleagues to support this resolution.”