Dodd-Frank News Center

CFPB's 2013 indirect auto lenders bulletin nullified

This story appeared in Bank Digest.                                     

On Monday, May 21, 2018, President Donald J. Trump signed into law S.J. Res. 57, which used Congressional Review Act authority to nullify the Consumer Financial Protection Bureau's 2013 bulletin regulating indirect auto lenders for compliance with the Equal Credit Opportunity Act. The Senate had approved the resolution by a 51-47 vote on April 18, and the House of Representatives followed suit with a vote of 234-175 on May 8. 

The CFPB issued the guidance to ensure compliance with the ECOA and to institute more rigorous oversight of the automobile financing process to eliminate discriminatory practices. But Section 1029 of the Dodd-Frank Act forbids the Bureau from regulating auto dealers, and the bulletin was issued without allowing public comment. In addition, some auto dealers feel it threatens their ability to negotiate the terms of loans with their customers and that the guidance has been used to sanction auto financing companies. 

A CFPB press release noted, "Today's action also clarifies that a number of Bureau guidance documents may be considered rules for purposes of the CRA, and therefore the Bureau must submit them for review by Congress."

House passes resolution rescinding CFPB auto lending guidance

This story appeared in Bank Digest.                                     

The House of Representatives has passed S.J. Res. 57, which uses Congressional Review Act authority to repeal the Consumer Financial Protection Bureau's 2013 indirect auto lending guidance, by a vote of 234 to 175. The resolution previously passed the Senate on April 18, 2018. 

In a prepared statement on the House floor, House Financial Services Committee Chairman Jeb Hensarling (R-Texas) supported the resolution, saying the CFPB's guidance "essentially outlawed the practice of auto dealers in America being able to take wholesale financing from third parties and charge retail rates." But in her prepared floor statement, Committee Ranking Member Maxine Waters (D-Calif) said the resolution was "an inappropriate and misguided use of the Congressional Review Act that sets a dangerous precedent," adding that the CFPB's guidance "was issued to provide clarity to indirect auto lenders and protect auto loan borrowers from discrimination." 

House Speaker Paul Ryan (R-Wis) issued a statement after the vote saying it "will bring change and make things easier for consumers and businesses alike within the auto lending marketplace." 

Republican staff report asserts potential legal problems with CFPB's auto lending rule

This story appeared in Bank Digest.

Republican members of the House Financial Services Committee have released an investigative report, based on internal Consumer Financial Protection Bureau documents, that claims to reveal several potential legal problems with the bureau's 2015 rule authorizing it to regulate the auto lending market. One is CFPB Director Richard Cordray's failure to heed bureau attorneys who advised him to publish a list of institutions the bureau believed would be subject to the proposed rule and to re-open the public comment period after it had closed.

According to the committee's press release, the report also demonstrates that under recent Supreme Court precedent, the CFPB's use of the "disparate impact" legal theory in enforcement actions against auto financers would not survive judicial scrutiny. This is the third investigative report released by committee Republicans over the last 14 months concerning the CFPB's efforts to regulate auto lenders.

CFPB proposes requiring lenders to ensure consumers can repay loans

This story appeared in Bank Digest.

The Consumer Financial Protection Bureau has issued a proposed rule that would require lenders to take steps to make sure consumers have the ability to repay their loans and would also prohibit repeated debit attempts that rack up fees. The proposed rule would cover payday loans, auto title loans, deposit advance products, and certain high-cost installment and open-end loans.

The CFPB's press release said the proposal would apply to certain short-term and longer-term credit products that are aimed at financially vulnerable consumers and that the bureau has serious concerns that risky lender practices in the payday, auto title, and payday installment markets are pushing borrowers into debt traps. Comments on the proposed rule must be received by Sept. 14, 2016.

In prepared remarks at a Field Hearing on Small-Dollar Lending in Kansas City, Mo., CFPB Director Richard Cordray said the bureau's proposal "would apply mainstream lending principles to payday, auto title, and certain other high-cost installment and open-end loans.        

In addition, the CFPB said it is launching an inquiry into other potentially high-risk loan products and practices that are not specifically covered by the proposed rule. The bureau has issued a Request for Information to solicit public comment on these issues. The bureau is seeking information about forms of non-covered loans such as high-cost, longer-duration installment loans and open-end lines of credit where the lender does not take a vehicle title as collateral or gain account access. It also seeks to learn more about practices that can affect borrowers' ability to pay back their debts. Comments on the Request for Information are due by Oct. 14, 2016.

• Summary of CFPB Research on Payday and Installment Loans
• Proposed Model Disclosure Forms
• Factsheet
• Report: "Supplemental findings on payday, payday installment, and vehicle title loans, and deposit advance products"
• CFPB blog post

CFPB issues report on single-payment vehicle title loans

This story appeared in Bank Digest.

The CFPB has issued a report that examines consumer usage and default patterns for single-payment vehicle title loans. In vehicle title loans, according to the report, a lender takes a security interest in the borrower’s vehicle, and the loan approval and amount are primarily based on the vehicle’s value, rather than a credit check and traditional underwriting. The bureau’s press release described these loans as high-cost, small-dollar loans borrowers use to cover an emergency or other cash-flow shortage between paychecks or other income.

The bureau’s report found that one in five borrowers who take out a single-payment auto title loan have their car or truck seized by the lender for failing to repay the debt. The report also found that more than four in five of these loans are renewed the day they are due because borrowers cannot afford to repay them with a single payment and that more than two-thirds of such loan business comes from borrowers who eventually take out seven or more consecutive loans and are stuck in debt for most of the year.

CFPB Director Richard Cordray said the report’s findings present “real concerns for consumers.” He went on to say, “When borrowers lose their personal vehicles, they also lose mobility. For those who have to walk away from a loan without their car or truck, the collateral damage can be severe if they experience serious challenges getting to their job or even to the doctor’s office.”

Guinta speaks to N.H. auto dealers about CFPB rate-setting policies

This story appeared in Bank Digest. 

Representative Frank Guinta (R-NH) spoke to New Hampshire auto dealers on September 24 about their frustrations with Consumer Financial Protection Bureau rate-setting policies that prevent dealers from lending to worthy borrowers at a discount, according to a press release issued by Guinta. According to Guinta, "To cope with CFPB harassment, dealers are offering high flat rates to everyone, no matter their credit scores. Or they're dropping out of the car loan business altogether."

Guinta has introduced the CFPB Indirect Auto Financing Guidance Act (H.R. 1737), which would require the CFPB to rescind current lending guidelines and conduct a thorough economic review before issuing further guidance, allowing for greater public comment, according to the release. Peter Welch, president of the National Automobile Dealers Association, praised the legislation.

Geithner Comments on Auto Industry

This story appeared in Bank Digest.

In an Op-ed published in the June 1, 2011, edition of The Washington Post, Treasury Secretary Tim Geithner discussed the successful restructuring of GM and Chrysler. According to Geithner, “The choice to stop the American automobile industry from unraveling was the right one.”

Chrysler Repays Outstanding TARP Loans

This story appeared in Bank Digest.

The Treasury Department has announced that Chrysler Group LLC has repaid its outstanding Troubled Asset Relief Program (TARP) loans. Chrysler's repayment comes six years before the scheduled maturity of those loans in 2017. Chrysler repaid $5.1 billion in TARP loans and terminated its ability to draw a remaining $2.1 billion TARP loan commitment. In total, the Treasury has received $1.5 billion in interest and fees from Chrysler, including $865 million associated with the final repayment.

GAO Questions Results of Treasury's Support of the Auto Industry

By Gregg D. Killoren, J.D., CCH State Banking Law Reporter, Bank Digest and Individual Retirement Plans Guide; co-author, Dodd-Frank Wall Street Reform and Consumer Protection Act—Law, Explanation and Analysis.

The Government Accountability Office has released a report examining the Treasury Department's commitment of $62 billion in Troubled Asset Relief Program funding to General Motors and Chrysler. Under the GAO's mandate to oversee TARP, the report addresses: (1) how restructuring with federal assistance has affected GM's and Chrysler's financial condition; (2) what Treasury has done to ensure that it disinvests in GM and Chrysler so as to protect taxpayers' interests and what risks remain in recouping its investments; and (3) how restructuring has affected auto communities and what the White House Council on Auto Communities and Workers and its staff in the Department of Labor's Office of Recovery for Auto Communities and Workers have done to mitigate these effects.

The GAO found that while federally-funded restructuring allowed GM and Chrysler to remain in business, and therefore benefited communities where auto work continued, communities where plants were idled or closed experienced economic challenges beyond those they already faced. Further, communities assisted by the White House Council program had mixed views on the results of the efforts. The Council also has not completed two of the four functions set forth in the executive order establishing it, and neither the Council nor its staff have demonstrated the results of their efforts, according to the GAO report. Although the Council is set to expire in June 2011 unless renewed by the President, fiscal year 2012 funding has been requested for the Auto Recovery Office to continue its efforts.

FTC Issues Report Discusses Dodd-Frank Act Initiatives

This story appeared in Bank Digest.

The FTC has issued its annual report to the Federal Reserve Board on the agency's enforcement activities regarding the Equal Credit Opportunity Act, Electronic Fund Transfer Act (EFTA), Consumer Leasing Act and Truth in Lending Act. This year's report also discusses FTC activities under the Dodd-Frank Act, such as enforcement of new EFTA requirements and the FTC's new authority over motor vehicle dealers.