Backers Hope Bill Becomes ‘Veto-Proof’

SCOTTSDALE, AZ – The House of Representatives overwhelmingly passed a bill that puts restrictions on perceived over-reaching by the Consumer Financial Protection Bureau, and the wide margin indicates the legislation could ultimately overcome a potential Presidential veto.

So says Chris Stinebert, president and CEO of the American Financial Services Assn. His group, the National Automobile Dealers Assn. and others have lobbied for legislation to rein in the agency.

“It is a first major victory in an effort to roll back a bit what the CFPB has been doing,” Stinebert says at an annual National Remarketing Conference here.

The House vote was 332-96 to make the CFPB more accountable and transparent. The bill also would curtail the bureau's effort to change the way dealers are compensated for acting as middlemen between car buyers and lenders.

The White House has indicated the President would veto the bill. But if the Senate vote on the matter is of a similar margin as the House tally, the legislation potentially would become “veto-proof,” Stinebert tells WardsAuto. A two-thirds Senate majority overrides vetoes.

"It is going to come down to that veto," says Jay Cadigan, vice president-industry relations at Manheim, an auto auction and remarketing services company.     

A creation of the Dodd-Frank Financial Reform Act, the CFPB directly oversees lenders, but critics claim it has overstepped its authority by indirectly and unreasonably overseeing dealers.

"You feel the CFPB is coming through the back door to get regulatory authority it really doesn't have," Steve Jordan, executive vice president of the National Independent Dealers Assn., says at the remarketing conference. 

“Sure you need (industry) oversight, but (the CFPB) needs oversight as well,” says Amit Shah, a senior vice president at Westlake Financial Services. “That’s what we are saying.”

The federal regulator says an analysis it did indicates minorities are charged higher dealer-reserve rates than are non-minorities.

In making the accusation, the CFPB criticizes the long-standing system in which dealers increase loan rates by varying percentage points as payment for acting as middlemen between lenders and car buyers. The average so-called dealer reserve is about 1%, according to the NADA.

The add-on practice gives dealers the discretion to set final consumer-loan interest rates, with lender approval. That’s led to rate discrimination against minorities, the CFPB says.

Stinebert’s association commissioned a study to assess how the CFPB came up with its disparate-impact results. Charles Rivers Associates did the analysis involving more than 8.2 million auto-financing contracts.

The firm says data crunching fails to support the CFPB’s discrimination claims. Charles Rivers also called the methodology flawed, biased and based too much on assumptions drawn from borrowers' last names and zip codes.

The bureau had sought to replace the dealer-reserve system with something such as flat fees. Citing unintended consequences, NADA says such a switch would increase consumer loan costs.  

“It is reasonable for Congress to ask for minimal due process to protect consumers," NADA President Peter Welch says of the House vote.

Dealers say some federal regulation compliance requirements cause unreasonable and unnecessary paperwork. Bill Luke, of Bill Luke Chrysler-Jeep-Dodge-Ram in Phoenix, AZ, offers an example.   

“Besides the bank sending letters, as a dealer I have to send letters telling customers if their credit application was turned down,” he says at the conference. “It’s ridiculous. Customers already know their credit application didn’t go through, because I didn’t sell them a car.”

In opposing the bill, the Obama administration says CFPB guidance helps ensure customers “are not charged disproportionately higher prices for auto loans because of their race, color, religion or other characteristics that should have no bearing on loan decisions.”

Bill opponents echo that sentiment. NADA, other dealer trade groups and leaders of the automotive credit sector say they unequivocally oppose any form of lending discrimination.

The CFPB has a “clear agenda,” Stinebert says. “They start out with the assumption the auto industry is out to hurt the consumer in some way. They are looking for evidence to support what they have already concluded.”

Before the House vote, NADA had avoided predicting a “victory.” Andrew Koblenz, the trade group’s vice president-legislative affairs, “has been careful not to use the words ‘win’ or ‘victory,’” an NADA official told WardsAuto in September.

But the association’s website today said of the House vote: “Consumers and Dealers Win!”

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