White House opposes auto financing bill
Washington — The White House opposes a bill in the U.S. House on auto financing arranged by auto dealers because it would “revoke important guidance designed to prevent discriminatory pricing of auto loans.”
The Obama administration said late Monday that the legislation, known as H.R. 1737, would revoke guidance issued in 2013 by the Consumer Financial Protection Bureau that helps ensure customers are not charged disproportionately higher prices for auto loans because of their race, color, religion or “other characteristics that should have no bearing on loan decisions.”
The bureau’s 2013 guidance had said that the compensation received by dealers for arranging auto loans, known as the “dealer reserve,” posed a fair-lending risk for financial institutions. It urged lenders to find another way to compensate dealers.
“The bill would create confusion about the existing protections in place to prevent discriminatory auto loan pricing, and effectively block CFPB from issuing related guidance in the near-term,” the White House said in a statement.
The bill would require the Consumer Financial Protection Bureau to study the cost and impact of restricting loans on car buyers as well as women-owned, minority-owned and small businesses before issuing guidance. And it would require the bureau to consult with the Federal Reserve Board, the Federal Trade Commission and the Department of Justice before issuing any further directions on auto loans.
The legislation is supported by the auto industry, including auto dealers, who complained that the 2013 guidance lacked public input and transparency, and could eliminate a dealer’s flexibility to discount auto loans in the showroom.
“The CFPB has sought, through ‘guidance,’ to make it impossible for dealers to discount interest rates for their customers, even for customers facing serious budget constraints,” National Automobile Dealers Association President Peter K. Welch wrote in a Tuesday op-ed.
“The main problem with the CFPB’s policy is that, while well-intentioned, it will reduce competition and raise credit costs, thereby hurting the very consumers it is trying to help.”
Consumer groups oppose the bill, arguing that it would create an unneeded hurdle for the bureau when issuing guidance to financial institutions on the auto finance regulations, and would harm progress in dealing with discrimination in the market.