The CFPB’s March 2013 Bulletin is Repealed
There’s been a lot of movement at the Consumer Financial Protection Bureau (CFPB) since its director, Richard Cordray, resigned his post in November 2017. Stepping into his role is Mick Mulvaney, Trump cabinet member and Director of the Office of Management and Budget.
With Mulvaney at the helm as acting director and the administration focused on deregulation, a recent change has made a significant impact on the auto lending industry.
On May 8th, the U.S. House of Representatives used the Congressional Review Act (CRA) to vote for a repeal of the CFPB’s March 2013 Bulletin that addressed indirect auto lending and compliance with the Equal Credit Opportunity Act (ECOA).
The resolution, which was previously passed by the Senate, is expected to be signed by President Trump in the next couple of weeks.
The Auto Finance Bulletin & It’s Impact
In a nutshell, the Bulletin provided Guidance on Fair Lending Practices to Indirect Auto Lenders. It was created to protect car buyers who financed through a dealership using indirect auto loans which are backed by banks. It’s common practice for indirect lenders to allow dealers to markup lender-established rates and later compensate dealers for those markups.
The Bulletin instantly caused turmoil across the market as vehicle finance companies found themselves under a microscope and scrambling to develop statistical models that would help them better identify fair lending risks. And because the CFBP was scrutinizing loan practices so closely, it inadvertently reduced the number of notes auto lenders were willing to fund. This also had a profound effect on Buy Here Pay Here dealers as many financing options for their customers, including subprime buyers, began to disappear.
Back to Getting More Consumers into More Cars
With the CFPB’s Auto Finance Bulletin a signature away from being officially repealed, Steve Jordan, CEO of the National Independent Automobile Dealers Association stated, “The reality is automobile dealers had a rich history of using indirect lenders to provide financial transactions in the best interests of the driving public long before the CFPB decided to interfere.”
Looking ahead, the industry is optimistic that BHPH auto lenders and vehicle finance companies will soon be able to get back to their traditional business of providing competitively priced auto loans for millions of high-risk consumers. In turn, underserved car buyers will once again have more financing options to meet their needs for reliable transportation.