Spat between CFPB, GOP intensifies with auto lending report

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In another apparent escalation in the clash between Republicans and Consumer Financial Protection Bureau Director Richard Cordray, House GOP leaders charged Wednesday that Cordray "may have violated federal law" when the agency cracked down on indirect auto lenders starting in 2013.

Republican members of the House Financial Services Committee released a report and documents alleging that Cordray and the CFPB used a "suspect legal theory and flawed statistical methodology" to extract settlements from auto lenders that were accused of discriminating against minorities.

"Once again we see the CFPB is a dangerously out-of-control, unconstitutional and unaccountable bureaucracy," Rep. Jeb Hensarling, R-Texas, chairman of the House Financial Services Committee, said in a press release. "It is a case study in the overreach and pathologies of the regulatory state run amok. The bureau routinely abuses and exceeds its authority, robs consumers of their economic freedoms, increases consumer costs and often attempts to hide information from the public."

The report, the third released by House Republicans in the past three years on the subject of indirect auto lending, comes at an increasingly tense time between the agency and the party controlling Congress, which will soon also control the White House.

The two sides may be laying the groundwork for a possible legal battle ahead if President-elect Trump seeks to fire Cordray. As the recent court decision involving the CFPB and PHH suggests, a sitting president may have legal basis for removing a CFPB director. Yet that decision has been temporarily stayed pending an appeal.

With just days before Trump takes office, speculation has grown that the incoming administration wants to replace Cordray with Rep. Randy Neugebauer, R-Texas.

On Tuesday, Senate Democrats said Cordray would attempt to block attempts to fire him before his term expires in July 2018.

House Republicans have held numerous hearings and conducted years-long investigations with a specific focus on the CFPB's settlements with auto lenders. Several auto lenders settled cases with the CFPB and Justice Department from 2013 to 2016.

The latest report alleges that the CFPB's legal theory of enforcement actions against auto lenders would not survive judicial scrutiny. The report also alleges that Cordray failed to publish a list of lenders that would be subject to a proposed rule on auto lenders, and that he did not re-open the public comment period after it had closed, despite recommendations by internal CFPB attorneys.

"Fuzzy logic and false comparisons are unfortunately prevalent in the CFPB's auto-lending actions," the report states. "In every aspect of the CFPB's auto-lending actions, the CFPB's lack of rigor leads to unsupported and unreliable conclusions."

For years, the CFPB has been using a theory known as disparate impact to cite auto lenders for unintentional discrimination, targeting cases where minority borrowers were charged higher dealer markups for their auto loans than similarly-situated non-Hispanic white borrowers.

The CFPB and Justice Department settled the first auto lender discrimination case in late 2013 against Ally Financial, which paid $80 million in damages to 235,000 borrowers and $18 million in penalties. The House Republican report cited other CFPB settlements against Toyota Motor Credit Corp., in 2016, and American Honda Finance Corp. in 2015.

The CFPB said it is reviewing the House GOP report.

"The bureau is committed to ensuring that consumers are treated fairly in the financial marketplace, and makes a conscientious effort at all times to carry out its mission in compliance with all applicable laws," CFPB spokesman Sam Gilford said in an email.

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Policymaking Auto lending Jeb Hensarling Richard Cordray CFPB