Senate repeals auto-loan guidance in precedent-shattering vote

The Senate on Wednesday repealed a controversial Consumer Financial Protection Bureau (CFPB) decree on auto-loan financing in a vote that could set a precedent for Republicans to repeal a broad range of regulations.

Senators generally fell along party lines in the 51-47 vote to repeal 2013 guidance from the CFPB on "dealer markups" — the interest a dealer adds to a customer's third-party loan as extra compensation. 

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Assuming the House passes the measure, the CFPB auto-lending guidance will likely be the first informal regulation to be repealed by Congress through the Congressional Review Act.

While Congress has used the Congressional Review Act more than a dozen times since 2017 to repeal formal rules issued under former President Obama, it has never before used the law to repeal guidance. Republicans are now looking to do so, and could go after a range of regulatory actions that had been considered off-limits. 

Efforts to repeal rules under the Congressional Review Act cannot be filibustered, giving Republicans a powerful tool to slash regulations with only a majority vote in each chamber. The act also bans agencies from issuing rules similar to those overturned under the law. 

Sen. Joe ManchinJoseph (Joe) ManchinSenate gears up for battle over witnesses in impeachment trial McConnell: I doubt any GOP senator will vote to impeach Trump Manchin warns he'll slow-walk government funding bill until he gets deal on miners legislation MORE (W.Va.) was the only Democrat to vote in favor of repealing the CFPB guidance, while Sens. John McCainJohn Sidney McCainJeffries blasts Trump for attack on Thunberg at impeachment hearing Live coverage: House Judiciary to vote on impeachment after surprise delay Budowsky: Would John McCain back impeachment? MORE (R-Ariz.) and Tammy DuckworthLadda (Tammy) Tammy DuckworthLawmakers call for investigation into program meant to help student loan borrowers with disabilities Overnight Energy: Protesters plan Black Friday climate strike | 'Father of EPA' dies | Democrats push EPA to abandon methane rollback Democratic senators push EPA to abandon methane rollback MORE (D-Ill.) missed the vote.

The resolution is expected to easily pass the House, and the White House announced Tuesday that aides to President TrumpDonald John TrumpDemocrats ask if they have reason to worry about UK result Trump scramble to rack up accomplishments gives conservatives heartburn Seven years after Sandy Hook, the politics of guns has changed MORE would recommend that he sign it.

“The goal here is simple: We want to protect consumers and job creators from needless interference by the federal bureaucracy,” said Senate Majority Leader Mitch McConnellAddison (Mitch) Mitchell McConnellSherrod Brown backs new North American trade deal: 'This will be the first trade agreement I've ever voted for' McConnell: Bevin pardons 'completely inappropriate' House panel to hold hearing, vote on Trump's new NAFTA proposal MORE (R-Ky.).

“We can nullify a particularly egregious overstep by [the CFPB] and notch another victory in this Congress’s record of rolling back overregulation.” 

It did not initially appear that the Congressional Review Act could be used to cover informal policies like the CFPB auto-lending guidance. 

That changed in December, when the Government Accountability Office ruled that unofficial regulations were covered under the law. Sen. Pat ToomeyPatrick (Pat) Joseph ToomeyNSA improperly collected US phone records in October, new documents show Overnight Defense: Pick for South Korean envoy splits with Trump on nuclear threat | McCain blasts move to suspend Korean military exercises | White House defends Trump salute of North Korean general WH backpedals on Trump's 'due process' remark on guns MORE (R-Pa.), who requested the analysis, and Sen. Jerry MoranGerald (Jerry) MoranThe Hill's Morning Report — Sponsored by AdvaMed — House panel delays impeachment vote until Friday McConnell, Grassley at odds over Trump-backed drug bill Senators inch forward on federal privacy bill MORE (R-Kan.) introduced the resolution repealing the guidance. 

The CFPB had sought to eliminate dealer markups over concerns that black and Latino customers were often charged higher rates than whites with identical credit profiles, citing several analyses — including their own — of auto loan data. 

The bureau in March 2013 released regulatory guidance warning auto dealers about the legal risks of dealer markups and how the CFPB would crack down under the Equal Credit Opportunity Act on sellers who offer discriminatory rates.

“Lender policies that provide dealers with this type of discretion increase the risk of pricing disparities among consumers based on race, national origin, and potentially other prohibited bases,” the CFPB said in a statement announcing the policy. 

The auto-lending policy was not issued as a formal rule, but served as the legal justification for a slew of CFPB lawsuits against car dealers.

The CFPB and Justice Department sued Ally Financial in December 2013 for close to $100 million in fines and damages for minority customers. They alleged that black, Hispanic, Asian and Pacific Islander borrowers paid higher interest rates for their auto loans between April 2011 and December 2013. 

The CFPB also sued Honda and Toyota for ten of millions of dollars over similar charges

Car dealers, their Republican allies in Congress and business groups defended the dealer markups as a standard financing practice and said concerns of discrimination were unfounded. 

Critics of the CFPB guidance said the bureau rushed ahead with overbearing policy based on flimsy evidence without going through the proper administrative checks, seeking to exploit a loophole.

The National Automobile Dealers Association (NADA), which supports the repeal of the 2013 guidance, said car-sellers are still subject to strict federal oversight to prevent racial disparities.

NADA called the repeal “a measured response to the CFPB’s attempt to regulate the $1.1 trillion auto financing market, avoid congressional scrutiny by issuing ‘guidance,’ and impose a new policy without necessary procedural safeguards.”

The successful Senate repeal vote alarmed a slew of progressive and consumer advocacy groups who had praised the CFPB’s action on auto loans. 

Lauren Saunders, associate director of the nonprofit watchdog National Consumer Law Center, said the Senate set “a horrible precedent to use this really crude, fast track procedure to undo guidances.”

“Guidances are used to help fill in the gaps and help people understand regulations and laws,” Saunders said. “Using this crude process to not only repeal guidance but chill agencies through the ban on substantially similar rules makes it harder for agencies to serve the public.”

Others tied the Senate vote to the broader GOP effort to weaken the CFPB and undo its rules. 

Karl Frisch, executive director of liberal nonprofit Allied Progress, blasted “D.C. politicians from both parties … who have their sights set on reversing much of the important work the CFPB has accomplished over the years.”

“Today's vote to gut consumer protections from discriminatory auto lending practices did not happen in a vacuum,” Frisch said.

Updated at 7:20 p.m.