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GAO effectively scraps CFPB auto lending guidance

WASHINGTON — The Consumer Financial Protection Bureau’s 2013 guidance putting indirect auto lenders on the hook for unintentional discrimination by their partner dealers should have been subject to congressional review and must be resent by the agency, the Government Accountability Office said Tuesday.

In a letter to Sen. Pat Toomey, R-Pa., the agency said the controversial bulletin “is a general statement of policy and a rule under the” Congressional Review Act.

The decision effectively scraps the auto lending guidance because it was not properly sent to Congress for review — and therefore it can no longer be used by agency examiners until that occurs.

“GAO’s decision makes clear that the CFPB’s back-door effort to regulate auto loans, which was based on a dubious legal justification, did not comply with the Congressional Review Act,” Toomey said in a press release. “GAO’s decision is an important reminder that agencies have a responsibility to live up to their obligations under the law. When they don’t, Congress should hold them accountable. I intend to do everything in my power to repeal this ill-conceived rule using the Congressional Review Act.”

But a full-fledged Review Act push by Toomey probably won’t be necessary. The GAO’s decision remands the guidance to the CFPB, which must resend it for lawmakers' review.

It is highly unlikely that the CFPB will do so now that it is under the control of acting CFPB director Mick Mulvaney, given Republicans’ long-standing objections to the guidance.

The GAO dismissed arguments by the consumer bureau that the guidance did not constitute rulemaking because it was not legally binding. But the office said "general statements of policy," which aren't legally binding, still should be subject to Congressional Review Act.

"We decided that the Interagency Guidance fell squarely within CRA as an agency action that constituted a 'statement of general . . . applicability and future effect designed to implement, interpret or prescribe . . . policy,' " the GAO said. "Similarly, the CFPB Bulletin at issue here is a statement of general applicability, since it applies to all indirect auto lenders; it has future effect; and it is designed to prescribe the Bureau’s policy in enforcing fair lending laws."

From the moment it came out several years ago, the guidance was controversial. Auto lenders argued that they shouldn’t be penalized for unintentional discrimination by partner dealers against minority customers under so-called disparate impact theory.

They also objected to the CFPB’s methodology for determining discrimination. Because borrowers are not required to put their race or ethnicity on an auto loan application, the CFPB had to use regressive analysis to effectively guesstimate which borrowers were minorities.

Lawmakers have tried to no avail to scrap the guidance. The House passed a bill in 2015 that would have eliminated the guidance. But the Senate did not take up the issue.

How much practical impact the GAO's ruling will have is unclear. Under Mulvaney, it was highly unlikely that he would have allowed the guidance to be used against indirect auto lenders. Indeed, even under former CFPB Director Richard Cordray, the agency's pursuit of auto lenders had waned.

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