Auto Loans

Auto Dealer Markups, Jim Crow Finance, and the Congressional Review Act

How Congress May Bend the Rules to Facilitate Overpriced and Discriminatory Auto Lending

In 2013 the Consumer Financial Protection Bureau (CFPB) released a guidance document that explained how “dealer markups” can violate the Equal Credit Opportunity Act when those markups have discriminatory effects on minority borrowers. The CFPB provided the guidance to assist financial companies on how to comply with existing law, not to create new requirements.

A “dealer markup” occurs when an auto dealership receives an undisclosed kickback from a lender in exchange for persuading the customer to agree to a higher interest rate than the borrower qualifies for with that lender. While dealer markups inflate the cost of purchasing vehicles for customers from many backgrounds, studies show that markups can be discriminatory because they may result in some minority groups paying higher interest rates on average than white borrowers with similar credit histories.

Instead of helping the CFPB promote fair and transparent auto finance, Congress is now considering resolutions under the Congressional Review Act that would invalidate the CFPB’s guidance on discriminatory auto dealer markups. These resolutions are a dangerous and unconventional use of the Congressional Review Act, which has never before been used to attack an agency’s guidance document that merely interprets existing law.

In this issue brief, CFA:

  • Calls on members of Congress to oppose S. J. Resolution 57 (Moran-KS) and H. J. Res. 132 (Zeldin-NY);
  • Recommends prohibiting dealer markups that vary dealer compensation based on loan terms other than the amount financed; and,
  • Advises consumers to protect themselves from dealer markups by shopping for auto finance in advance with a reputable credit union or bank instead of relying on the sales staff at an auto dealership

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