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 an industry 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 a vote in favor of letting auto dealers and lenders continue charging some borrowers more simply because of the color of their skin.
Car buyers who need financing most often obtain 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 been a driver of racial discrimination, as well as a source of unfairness all around.
In the mid-1990s, a series of class-action lawsuits were brought against the largest auto finance companies. The data from those cases conclusively showed 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 similarly situated 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 a report 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. The added expense for these borrowers 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 pricing of loans. The CFPB partnered with the Department of Justice in enforcement actions against Ally Financial, Honda, Fifth Third Bank, and Toyota — actions that generated more than $150 million in fines and delivered restitution to some 425,000 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.
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 that would formally repeal the 2013 guidance, and potentially curb the Bureau’s ability to take similar action in the future
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 kickbacks through practices that consistently result in borrowers of color paying more. For too many lawmakers, however, evidence and logic appear to count for nothing when they hear from a powerful and ubiquitous industry.
Ironically, these votes roughly coincide with the 50th anniversary of the Fair Housing Act, which prohibited discrimination in the financing as well as the sale and rental of residential property. Discriminatory lending in all its forms has come to be understood as an important factor in perpetuating 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 also send a terrible message about their commitment to justice and equality 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 equal rights under the law, and fairness for people of all races.
James Lardner is a Senior Fellow at Americans for Financial Reform