Congress is about to make a big decision that has drawn far too little notice. The Senate plans to vote this week on a proposal to overturn a Consumer Financial Protection Bureau guidance against discriminatory auto lending.
We are talking about a form of lending with a long and sordid history of making nonwhite borrowers pay more than similarly situated white borrowers — often a great deal more. Against that background, a vote in favor of the Senate measure would be tantamount to an endorsement of racial discrimination.
Car buyers who need financing obtain it, as a rule, through the dealers selling them their vehicles. Unknown to most buyers, dealers typically receive backdoor rewards from lenders — kickbacks, in plain English — for getting customers to accept loans that are more expensive than their income and credit history qualifies them for. In practice, these so-called dealer mark-ups have long served as an instrument of discrimination.
In the mid-1990s, a series of class-action lawsuits were brought against the largest auto finance companies. The data from those cases conclusively proved that African-American and Latino car buyers were more likely than white borrowers to have their interest rates marked up, often costing them thousands of dollars more than white borrowers.
It would be nice to think such practices had been consigned to the dustbin of history. But we know better. In January, the National Fair Housing Alliance published the results of a study in which white and nonwhite test-consumers shopped for the same car at roughly the same time. More often than not, a better qualified non-white applicant was offered higher-cost financing options than a less qualified white applicant — and the added expense was hardly trivial. It came to an average of more than $2,500 over the life of the loan.
Despite all the evidence, the federal government did little to address this widespread problem until the Consumer Financial Protection Bureau came along. In 2013, the Consumer Bureau issued a guidance warning auto dealers and lenders to follow the Equal Credit Opportunity Act, and not to discriminate in either the making or the pricing of loans. Since that time, the CFPB has partnered with the Department of Justice in enforcement actions against Ally Financial, Honda, Fifth Third Bank, and Toyota — actions that have generated more than $150 million in fines and restitution to some 425,000 minority borrowers. In June 2015, the Bureau began to oversee the auto lending practices of nonbank financial companies, which had pretty much escaped all federal regulation until then.
The nation’s auto dealers have fought the bureau all the way, and since the 2016 elections their objections have carried more and more political weight. Under its Trump-installed temporary leadership. the Consumer Bureau itself has stepped back from fair-lending enforcement, as part of a broad abandonment of its consumer-protection mandate. Now the dealers and their lending partners are leaning on Congress to pass a resolution meant not just to formally repeal the 2013 guidance, but to make sure the bureau maintains its hands-off policy under future leaders.
The auto dealers’ and lenders’ arguments are beyond specious — they talk about keeping “auto loans affordable and accessible for all consumers,” when what they are really seeking is the freedom to generate extra loot through practices that consistently result in borrowers of color paying more. For many lawmakers, however, evidence and logic appear to count for nothing when they hear from a powerful and ubiquitous industry.
Ironically, this vote roughly coincides with the 50th anniversary of the Fair Housing Act, when Congress finally confronted a history of similar practices in the world of mortgage lending. Discriminatory lending in all its forms has come to be understood as an important factor in creating the profound racial wealth gap that is one of our country’s great shames. It is a very sorry sign of the times that many of our elected representatives in Washington would even consider voting for such a measure.
But it is not too late for Senators to reconsider a vote that would not only countenance the continuation of one particular, deplorable form of injustice but set a terrible precedent for anti-discrimination guidance across the board. It is time for Senators to look themselves in the mirror and decide if they really and truly care more about currying favor with an influential and financially generous industry than about the idea of equal rights under the law, or, to put it another way, about basic fairness.
James Lardner is a Senior Fellow at Americans for Financial Reform