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

The ruling not only throws into question the direct auto guidance, but also other guidance that the agency may have issued without 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 to regulate auto loans, which was based on a dubious legal justification, did not comply with the Congressional Review Act,” Toomey said.

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

The CFPB guidance stated that auto dealers who participate in indirect lending must comply with the Equal Credit Opportunity Act when marking up interest rates.

The agency said at the time that research indicated that indirect auto lending practices may lead to African Americans and Hispanics being charged higher interest rates than white consumers.

When it was issued, credit union and auto sales groups questioned the methodology of the CFPB analysis and questioned the process 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 the Congressional Review Act, which establishes guidelines by which Congress can repeal a rule.

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

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

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

“The indirect lending guidance was particularly concerning since arguably it was done outside of the scope of authority Congress granted to the CFPB in Dodd-Frank,” said Leah Dempsey, CUNA’s senior director of advocacy and counsel.

“It was one of their most significant bulletins,” said NAFCU Director of Regulatory Affairs Alexander Monterrubio. “The bulletin is 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 it should have been done through the rulemaking process,” she said.

Monterrubio agreed.

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

Instant Insights /

CFPB Indirect Auto Guidance Violated Law, Report Finds

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