The Senate today voted to kill a five-year-old Obama administration “guidance” on making auto loans to minority borrowers. The House almost certainly will follow suit.
The guidance, issued by the Consumer Financial Protection Bureau, took aim at a common industry practice whereby auto dealers mark up interest rates offered by finance companies. The finance companies set an interest rate based on objective criteria such as borrowers’ credit history and the size of their down payments. Auto dealers are then free to raise the interest rates within certain limits based on their own analysis.
The demise of this Obama-era guidance is significant both in terms of the policy’s merit (or demerit) and in terms of its administrative law implications. Let’s begin with the latter.
The Congressional Review Act (CRA) authorizes Congress to rescind regulations enacted by the executive branch. Only a majority vote is needed in the Senate (and, of course, the House).
However, the Obama-era document on auto loan policy is not a formal regulation. It is guidance and, as such, can fairly be characterized as an informal, or unofficial, regulation.
The CRA has never before been used to rescind administrative guidance, though the Democrats, including some who railed against today’s action, once tried this. However, last December the Government Accountability Office (GAO) ruled that unofficial regulations were covered under this law. That set the stage for today’s vote to rescind, which passed 51-47 (Sen. Joe Machin was the only Democrat to vote in favor of the rescission).
I think we can expect the Senate to rescind other Obama-era guidance documents in the near future. I imagine we can also expect court challenges to the view that the CRA permits such rescission.
As to the merits of today’s vote, it’s important to keep in mind that the right to challenge discrimination by auto dealers in lending remains intact. Dealers are still barred from charging higher rates to black and Latino customers based on race and/or ethnicity. If blacks and Latinos are charged more than whites with identical credit scores, auto dealers will have to justify their actions.
What’s changed, as I understand things, is that the Obama-era guidance document can no longer serve as the basis for a government lawsuit. (The CFPB has sued Honda and Toyota for ten of millions of dollars relying, at least in part, on the guidance). In addition, the position stated in the guidance no longer will be entitled to whatever deference it might otherwise receive in court. How much deference that is probably depends, in practice, on how the judge in question views the position the guidance adopts — in other words, on the judge’s ideology.
The government has also used the guidance to wrest settlements from auto dealers and finance companies (who apparently split the profits from the higher loan rates). The settlements reportedly rankled some Republican Senators.
The CFPB guidance was based at least in part on a 2011 report by the Center for Responsible Lending. It stated that “African-Americans and Latinos disproportionately received interest rate markups more frequently and to a greater degree than their similarly-situated white counterparts.”
Critics claim that this finding was based on “junk science.” Statistics can be a legitimate basis for inferring discrimination, but are frequently misused in various contexts for this purpose. Which is the case here, I can’t say.
The 2011 report states that “in the past decade, eleven major lenders that participate in indirect financing have settled class action lawsuits alleging racial discrimination in how markups were assigned to their loans.” This suggests that the CFPB guidance may not be necessary to enforce the law against companies that truly discriminate. I doubt that it is.
Regardless of the merits and the impact of the rescission of this particular guidance, the fact that the CRA was used to rescind it marks a potentially significant development in administrative law.