Regulation and Discrimination: Race and Interest Rate Mark-Ups in the Auto Loan Industry

Abstract

The Consumer Financial Protection Bureau (CFPB) established guidance on indirect auto lending in 2013 with the intent of lowering the rate of discriminatory lending in the auto industry. It has since been repealed in an unprecedented manner with Public Law 115 172 (Consumer Financial Protection Bureau, 2013; 115th Congress, 2018). The goal of the guidance was to hold indirect auto lenders responsible for discrimination in interest rates offered to customers of different groups due to mark-ups built into their bids. Congress repealed the guidance under the Congressional Review Act (CRA) in the summer of 2018. The guidance on indirect auto lending no longer holds any power over these indirect lenders’ mark-up policies, and no future guidance can be put in place with similar parameters as a result of the repeal. This block on legislation relating to indirect lenders holds a large amount of power because they are the majority of the financial entities that financial actions can target within the auto loan industry. Additionally, as one of its flagship movements in the infancy of a new Bureau, the guidance is likely to set precedence for how the CFPB handles itself in the future. Now in hindsight, was the guidance by the CFPB on indirect auto lending effective in lowering discrimination in the auto loan industry?