Senate Votes to Ease Restrictions on Auto Lending Discrimination


WASHINGTON — The Senate voted on Wednesday to overturn an Obama-era rule that restricted automobile lenders from discriminating against minorities by charging them higher fees for car loans, in the latest attempt by Republican lawmakers to roll back financial regulations.

Republican lawmakers, along with one Democrat, Senator Joe Manchin of West Virginia, seized on the Congressional Review Act to overturn guidance issued in 2013 by the Consumer Financial Protection Bureau. The 1996 law gives Congress the power to nullify rules formulated by government agencies but has primarily been used to void recently enacted rules.

After the Government Accountability Office determined late last year that the consumer bureau’s 2013 guidance on auto lending was technically a rule that could be rolled back, Republicans, led by Senator Patrick J. Toomey of Pennsylvania, targeted it for rescission by using the Congressional Review Act. The House is expected to follow suit and also use the Congressional Review Act to void the guidance.

Republicans have long derided the consumer bureau, created by the 2010 Dodd-Frank law, for exceeding its authority, and President Trump’s pick to lead the agency on an interim basis, Mick Mulvaney, has largely frozen its rule-making and enforcement.

Democrats and consumer watchdogs criticized the move and warned that Republicans were making broader use of the Congressional Review Act to advance their deregulatory agenda.

“By voting to roll back the CFPB’s work, senators have emboldened banks and finance companies to engage in racial discrimination by charging millions of people of color more for a car loan than is justified,” said Rion Dennis of Americans for Financial Reform, an advocacy group. “Lawmakers have also opened the door to challenging longstanding agency actions that are crucial to protecting workers, consumers, civil rights, the environment and the economy.”

Senator Richard Blumenthal, a Democrat from Connecticut, warned that rescinding the guidance would lead to a flood of unfair, predatory lending.

“This truly repugnant resolution ignores the unacceptable, undeniable truth that consumers’ interest rates are regularly marked up based on their race or ethnicity — a disgusting practice that continues to run rampant across the country,” he said.

The Department of Justice can still bring lawsuits against auto lenders for discriminatory practices, even if the guidance is nullified. However, legal experts say the government could be less successful in bringing such cases without the guidance from a government agency saying the practices are viewed as improper.

A 2011 report from the Center for Responsible Lending analyzed loan level data and found that African-Americans and Latinos were receiving higher numbers of interest rate markups on their car loans than white consumers. The bureau issued guidance in 2013 urging auto lenders to curb discriminatory lending practices and used that guidance to justify lawsuits that they brought against auto finance companies.

In late 2013, Ally Financial agreed to pay $98 million to settle accusations that it discriminated against minority borrowers who were charged more than white customers for auto loans by car dealers. The consumer bureau, along with the Department of Justice, also scored big settlements from American Honda Fifth Third Bank.

The settlements rankled Republicans who argued that the consumer bureau was using “junk science” to make the case that auto lenders were discriminating against customers on the basis of race.

The Senate vote comes as companies face increased scrutiny for discriminatory practices. Starbucks is under fire after an employee called the police about two black men who were sitting in one of their Philadelphia coffee shops and waiting for a friend. The men were arrested.

But business groups and Republicans cheered the move, saying it would ease lending restrictions for car purchases.

“The legislation is 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,” said Peter Welch, president of the National Automobile Dealers Association.

Mr. Toomey hailed the rollback of the auto-lending restrictions as the repeal of an “ill-conceived regulation” and a sign that Congress was ready to reassert control over government agencies that have exceeded their authority.

“Any guidance, in fact any rule-making, ultimately, should be subject to congressional review,” Mr. Toomey said.

Representative Jeb Hensarling of Texas, the Republican chairman of the House Financial Services Committee, said the auto lending restrictions epitomized the consumer bureau’s rogue approach under its previous leadership. He said that the bureau had abused and exceeded its legal authority in trying to prevent discrimination in auto lending.

“I look forward to finally repealing this harmful and flawed bulletin very soon,” Mr. Hensarling said.