President and Congress Roll Back Anti-Discriminatory Auto Lending Guidance: What’s Next for Consumers?
By Charlene Crowell
Despite federal laws addressing discrimination in housing, credit, and more, President Donald Trump signed on May 21, a rollback of an anti-discrimination guidance affecting auto lending. The presidential signature also marked the first time that a policy that had been in effect for several years was reversed through a special, streamlined legislative process under the Congressional Review Act.
The significance of this action will have national and rippling effects. Nationwide, auto loans represent the third highest category of consumer debt – behind mortgages and student loans. With so many communities across the country lacking accessible, metropolitan public transit services, owning or having access to a reliable automobile is central to access jobs, health care, education and more.
According to the National Automobile Dealers Association, the sale of 17.14 million new cars in 2017 by franchised dealerships surpassed $1 trillion in sales. The Center for Responsible Lending (CRL) has also noted that 80 percent of vehicle loans are financed through dealers.
Further, as the number of auto loans grow, so does the average cost of a new car. According to Experian, one of the three major credit reporting bureaus, the average loan amount for a new car in late 2017 was $31,099 and came with an all-time high record monthly payment of $515. The comparable figure for an average used car payment of $371 came with an average loan of $19,589.
When racial discrimination is added to these already significant numbers, consumers of color wind up paying even more – due to the color of their skin, instead of the quality of their credit ratings.
Over the last few years, the Equal Credit Opportunity Act (ECOA) was the legal basis for lawsuits and settlements involving Ally Financial, Fifth Third Bank, and the financing arms of major auto manufacturers Honda and Toyota. This law makes it illegal to discriminate on race or other protected classes in credit transactions. In auto lending, indirect auto lenders – those who finance loans through dealers – are creditors who must uphold the law. Thanks in part to the 2013 CFPB indirect auto lending guidance, consumers of color were awarded restitution totaling more than $140 million for alleged discrimination.
“Countless lawsuits have shown how people of color pay millions more for their car purchases, compared to similarly situated whites,” noted Delvin Davis, a CRL Senior Researcher. “Without a regulator that enforces fair lending standards, African-Americans and Latinos stand to bear the weight of discrimination without any relief.”
The presidential signing was made possible by both chambers of Congress turning to the Congressional Review Act. This law allows simple majority votes in the House and Senate to override regulation. Until now, this act had only been used to undo new regulation; this recent usage marks the first time that a long-standing policy was the focus.
Mick Mulvaney, the illegally appointed Acting CFPB Director, said, “Given a recent Supreme Court decision distinguishing between anti-discrimination statutes that refer to the consequences of actions and those that refer only to the intent of the actor, and in light of the fact that the Bureau is required by statute to enforce federal consumer financial laws consistently, the Bureau will be re-examining the requirements of the Equal Credit Opportunity Act.”
Strong and opposing views quickly surfaced upon the President’s signing. Karl Frisch, Executive Director of Allied Progress, is one such consumer activist.
“President Trump can try to spin it any way he wants, but the bottom line is this – black and brown folks are systematically charged more for their car loans even when they have the same credit as whites,” said Frisch. “This president has consistently shown us that consumers are not of any importance to him, particularly when they are people color.”
Research supports Frisch’s critique.
Discrimination in Auto Lending, authored and published earlier this year by the National Fair Housing Alliance (NFHA), found that despite federal laws banning credit discrimination by race or ethnicity, race remains a key factor in the cost of financing auto loans. Like secret shoppers, NFHA sent eight teams of testers to dealerships to inquire about purchasing the same vehicle. Each team was told to ask the same questions and then report on their experiences.
Although all testers encountered challenges to securing information needed to secure the best auto loan available, non-White testers noted being treated disrespectfully and receiving a higher-cost quote for financing than the White testers. Numerically, the sum of experiences found:
75 percent of the time, White testers were offered more financing options than Non-White testers;
62.5 percent of the time, Non-White testers who were more qualified than their White counterparts received more costly pricing options; and
On average, Non-White testers who experienced discrimination would have paid an average of $2,662.56 more over the life of the loan than less-qualified White testers.
For consumers everywhere, but particularly for consumers of color, Mulvaney’s harsh words signal that so many of the hard-fought battles to bring fairness and equality are at risk.
Prior to the House vote taken on May 8, Congresswoman Maxine Waters, the Ranking Member of the House Financial Services Committee warned her colleagues about the regressive effects that would occur if the measure was enacted.
“This resolution would set back efforts to prevent discriminatory auto lending, make it harder for responsible businesses to follow the law, and harm consumers,” said Waters.
Sadly, when it comes to financial fairness in auto finance, truer words were never spoken. The real question for consumers is, ‘What’s next’?