Stop CFPB from eliminating consumer discounts on auto financing in the showroom
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Across the country today, tens of thousands of new-car buyers are about to get some great news. Most of these car buyers know that financing is available through their local dealership, but many will be surprised to learn that their local dealership can often offer them a better financing rate than they might have gotten on their own.

Some of these customers may have already secured a financing rate from their bank, but their local dealership was able to beat it. For other customers, the dealer will offer to discount an auto loan, so a customer can stay within his or her monthly budget. And for those unable to obtain financing from a bank or a credit union, the dealership will reach out to sometimes a dozen or more lenders to find affordable financing.


Whatever the scenario, those customers are saving money – in many cases, hundreds of dollars – thanks to their local dealership.

Dealer-assisted financing is tremendously beneficial and convenient for consumers. That’s why the vast majority of consumers choose to obtain vehicle financing through their dealership.

Unfortunately, the Consumer Financial Protection Bureau (CFPB) still has a “guidance” on its books that threatens to eliminate a consumer’s ability to get a discounted auto loan from a dealer. This week, the House can fix this problem by passing S.J. Res. 57, a joint resolution to disapprove of the CFPB guidance.

In 2013, the CFPB issued its auto finance “guidance” to pressure indirect auto lenders to prevent dealers from discounting interest rates for their customers, even for customers facing serious budget constraints.

The CFPB based its policy on the claim that discounted interest rates could lead to fair credit concerns. Their claim was based on a flawed methodology used by the CFPB that guessed the race and gender of credit customers based on their names and zip codes.

A nonpartisan study found a 41 percent error rate in how the CFPB classified the ethnicity of a significant group of customers. Additionally, the CFPB ignored legitimate business factors unrelated to the race or gender of credit customers that can affect their financing rates, such as the presence of a competing credit offer or a monthly budget constraint.

Perhaps worst of all, the CFPB’s “guidance” was issued as an attempt to alter the $1.1 trillion auto loan market and limit market competition without prior notice, public comment, or any analysis of the impact of its guidance on consumers, despite the likelihood that it would raise credit costs for car buyers.

The Senate’s passage last month of S.J. Res. 57 was a clear message that future actions by agencies should be fully transparent and in accordance with laws enacted by Congress. All members of Congress should agree that changes in the law or policy should not be done via “guidance.” It’s simply a recipe for poor public policy.

In addition, members of Congress have rightly questioned why the CFPB attempted to regulate dealers in the first place, since Congress specifically left regulation of dealers to the Federal Trade Commission. Under the Dodd-Frank Act, Congress made it clear that the CFPB has no jurisdiction over dealers.

For five years NADA tried to work with the CFPB to negotiate a non-legislative solution to this issue because compliance with fair lending laws and treating customers fairly is essential to the auto industry. Regrettably, the CFPB refused to consider all good faith alternatives to address potential fair credit concerns, including the adoption of a Department of Justice-based program specifically designed to lessen fair credit risks in indirect lending while preserving consumer discounts.

It’s time Congress resolved this important issue. Passage of S.J. Res. 57 will preserve consumer discounts on auto credit and put the brakes on an extremely flawed process. America’s franchised auto dealers urge House Members to vote “Yes” on S.J. Res. 57 to keep auto financing competitive and affordable.

Welch is President and CEO of the National Automobile Dealers Association.