The CFPB violated federal law when it issued indirect auto salesguidance in 2013 without allowing public comment before releasingthe controversial plan, the GAO said this week.

The ruling not only throws into question the direct autoguidance, but also other guidance that the agency may have issuedwithout soliciting comment.

The GAO examined the plan at the request of Sen. Pat Toomey(R-Pa.).

“GAO's decision makes clear that the CFPB's back-door effort toregulate auto loans, which was based on a dubious legaljustification, did not comply with the Congressional Review Act,”Toomey said.

He added that the ruling could lead to Congress repealing theguidance.

The CFPB guidance stated that auto dealers who participate inindirect lending must comply with the Equal Credit Opportunity Actwhen marking up interest rates.

The agency said at the time that research indicated thatindirect auto lending practices may lead to African Americans andHispanics being charged higher interest rates than whiteconsumers.

When it was issued, credit union and auto sales groupsquestioned the methodology of the CFPB analysis and questioned theprocess the CFPB used in developing the guidance.

Legislative efforts to repeal the guidance have stalled.

However, the GAO said that the guidance is subject to theCongressional Review Act, which establishes guidelines by whichCongress can repeal a rule.

The CFPB argued that he guidance is not subject to the CRA, theGAO said.

“CFPB argues, however, that because the Bulletin has no legaleffect on regulated entities, the CRA does not apply,” the GAOsaid. “The Bureau asserts that “taken , the CRA can logicallyapply only to agency documents that have legal effect.”

That’s not the case, the GAO said, in rejecting the agency’sargument. That means that before the guidance went into effect, itshould have been sent to Capitol Hill and the GAO and publiccomment should have been solicited

“The indirect lending guidance was particularly concerning sincearguably it was done outside of the scope of authority Congressgranted to the CFPB in Dodd-Frank,” said Leah Dempsey, CUNA’ssenior director of advocacy and counsel.

“It was one of their most significant bulletins,” said NAFCUDirector of Regulatory Affairs Alexander Monterrubio. “The bulletinis going to be changed or go away altogether.”

The GAO ruling could have an impact on other agency guidance,Dempsey said.

“We have seen similar guidance in debt collection bulletins,where if the CFPB is creating new policies or requirements itshould have been done through the rulemaking process,” shesaid.

Monterrubio agreed.

“It does bring into question other issues,” he said.