On November 24, 2015, Republican members of the House of Representatives’ Financial Services Committee issued a report titled Unsafe at Any Bureaucracy: CFPB Junk Science and Indirect Auto Lending, which blasts the Consumer Financial Protection Bureau (CFPB) for knowingly using unsound or weak methodology in challenging auto lending practices based on allegations of discrimination.
Among other things, the House report calls into question the statistical methods the CFPB used to allege racial discrimination in the auto lending industry. In addition, the report challenges the CFPB’s reliance on the legal theory known as “disparate impact” to take action against auto lending companies for alleged discriminatory lending practices. In a bit of irony, the report also accuses the CFPB of pursuing “its radical enforcement strategy using ‘unfair, abusive, and deceptive,’ tactics,” which is the very standard the CFPB is charged with enforcing against financial industry participants.
Representative Jeb Hensarling, Chairman of the Financial Services Committee, blasted the CFPB in a statement accompanying the release of House report, stating that the CFPB “is irresponsibly branding companies with the stigma of racial discrimination based on nothing more than junk science that even CFPB senior officials acknowledged is gravely flawed. Why? To cudgel those companies into enormous monetary settlements without ever having to go to court. If it sounds like a shake down, that’s because it is.”
House of Representatives Takes Action to Nullify CFPB’s Auto Financing Guidance
The House report on auto lending was released on the heels of a November 18, 2015, House of Representatives vote to nullify CFPB Bulletin 2013-02, related to indirect auto lending. CFPB Bulletin 2013-02 essentially provides guidance to the auto lending industry related to compliance with the Equal Credit Opportunity Act. However, many have viewed the Bulletin as CFPB’s way of indirectly attempting to supervise the auto industry, which is expressly prohibited by the Dodd-Frank Wall Street Reform and Consumer Protection Act. Further, although CFPB Bulletin 2013-02 is technically nonbinding and only serves as guidance to the industry, the Bulletin effectively functions as a rule because industry participants run the risk of an enforcement action or other adverse action if they fail to comply with its mandates. As such, H.R. 1737 expressly states that CFPB Bulletin 2013-02 “shall have no force or effect.”
CFPB Has a History of Facing Scrutiny for its Methodology
This is not the first time that the CFPB’s methodologies supporting its initiatives have been called into question. For instance, in March 2015, the CFPB released its Arbitration Study: Report to Congress 2015, which is a report on a study conducted by the CFPB to evaluate the impact of arbitration provisions on consumers. As a result of the study, the CFPB is currently considering proposals for new rules that, among other things, would prohibit the use of arbitration clauses that include class action waivers. However, the CFPB’s study has been widely criticized as having relied on insufficient data and ignoring other information that would lead to conclusions not favorable to the CFPB’s initiative to eliminate class action waivers. One such critique, titled The Consumer Financial Protection Bureau’s Arbitration Study: A Summary and Critique, was issued by law professors from the University of Virginia School of Law and George Mason University School of Law.
You can view the Financial Services Committee’s Unsafe at Any Bureaucracy: CFPB Junk Science and Indirect Auto Lending Report here: http://financialservices.house.gov/uploadedfiles/11-24-15_cfpb_indirect_auto_staff_report.pdf.
You can view Chairman Jeb Hensarling’s press release here: http://financialservices.house.gov/news/documentsingle.aspx?DocumentID=399984.
You can view more information on H.R. 1737 – Reforming CFPB Indirect Auto Financing Guidance Act here: https://www.congress.gov/bill/114th-congress/house-bill/1737/text.
You can view CFPB Bulletin 2013-02 here: http://files.consumerfinance.gov/f/201303_cfpb_march_-Auto-Finance-Bulletin.pdf.
You can view The Consumer Financial Protection Bureau’s Arbitration Study: A Summary and Critique here: http://mercatus.org/sites/default/files/Johnston-CFPB-Arbitration.pdf.
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Zane Gilmer is a member of the firm’s litigation practice group. His practice focuses on business litigation and compliance and he is a member of the firm’s CFPB taskforce. Zane works out of the firm’s Denver office and he can be reached at firstname.lastname@example.org or 303.376.8416.
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