Senators question consumer protection bureau on auto loan regulations

A group of 22 senators is questioning the Consumer Financial Protection Bureau (CFPB) on new rules for auto loans that car dealers say will limit their ability to find good deals for drivers.

The lawmakers, led by Sens. Rob Portman (R-Ohio) and Jeanne Shaheen (D-N.H.), argued that the consumer protection bureau's rules would make it more difficult for car dealers to give auto buyers loan options from places such as credit unions or banks.

"We write to express concern regarding the process by which the Consumer Financial Protection Bureau…has issued guidance that could curtail a pro-competitive feature of the indirect vehicle financing market and to request greater transparency for the bureau's activity related to this matter," the lawmaker wrote in a letter to Consumer Financial Protection Bureau chief Richard Cordray.

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"As you know, indirect vehicle financing is an optional method in which an auto dealer arranges financing for a consumer from a third-party lender, such as a bank, credit union or other financing source," the lawmakers continued. "This system provides consumers with the opportunity to determine if dealers can 'meet or beat' the best financing rate that the consumer can secure from other creditors, which frequently results in consumers obtaining a lower cost of credit than is otherwise available to them."

The lawmakers said the problem was that the consumer protection bureau signaled in March that was cracking down on third-party auto financing.

"On March 21, 2013, the bureau issued a fair lending guidance bulletin widely interpreted as pressing lenders to eliminate or severely limit an auto dealer's discretion to negotiate competitive financing for their customers, and instead encourage lenders to compensate auto dealers a 'different mechanism…such as a flat fee per transaction," the lawmakers wrote.

The consumer protection bureau has argued that the third-party lending could lend itself to discrimination against minority car buyers.

The lawmakers said Wednesday that they agreed that regulators needed to keep a watchful eye on the auto credit market, but the group said that they believed the consumer protection bureau was overstepping with its attempt to limit third-party auto lending.  

"We support the bureau's desire to eliminate any unlawful lending practices are are committed to ensuring the credit markets function competitively and efficiently for all consumers," the lawmakers wrote.

"Although the CFPB has alleged that 'disparate impact' discrimination is present in the indirect auto financing market, the bureau has yet to explain its basis for this assertion," the group of senators continued. "Nor has the bureau released the complete statistical methodology it employs for determining whether disparate impact is present in an auto lender's portfolio and the extent to which it has considered how the practical effect of its guidance will affect competition in the auto loan marketplace."

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