The Wall Street Journal editorial board championed a Republican-led effort to stop what it called an “outrageous regulatory campaign” by the Consumer Financial Protection Bureau, which aims to facilitate compensation for Americans who may have been discriminated against by auto financing agreements that have been shown to charge higher interest rates to minority customers.
On November 17, The Wall Street Journal editorial board argued that the Consumer Financial Protection Bureau (CFPB) should face additional administrative hurdles before making new rules on auto financing, dismissing evidence from the CFPB demonstrating racial bias in auto lending and financing agreements. According to The Huffington Post, numerous public interest groups in the United States are opposed to this attack on the CFPB which would “make it easier for car dealerships to overcharge people of color” through an interest rate manipulation process known as “markups.”
The CFPB was authorized to reduce consumer exploitation in areas of banking and credit under the Dodd-Frank Act and is the brainchild of Sen. Elizabeth Warren (D-MA). In March 2013, CFPB drafted new guidance on interest rate markups to stop racial bias in lending, proposing that banks end the practice in favor of a flat fee service or follow strict rules to prevent prejudicial lending. The Center for Responsible Lending found that ending the markup practice and replacing it with a transaction fee would save all consumers money while still paying auto dealers for their financial services.
The Journal ignored all of this when it joined with anti-consumer advocates pushing for Congress to roll back the abilities of the CFPB to protect consumers from this predatory lending practice:
On Wednesday the House is expected to vote down the Consumer Financial Protection Bureau's extralegal campaign against the nation's auto dealers. This is an important moment. Even Democrats are beginning to push back against the regulatory agenda crafted by President Obama and Massachusetts Senator Elizabeth Warren. Let's hope the dissident donkeys survive the experience. The consumer bureau has been forcing settlements on banks that provide financing via car dealers by claiming the dealers are discriminating with higher rates against minority borrowers. The bureau's standard procedure is not to offer evidence of bias. Instead, the regulators guess the ethnicity of borrowers based on their last names and where they live, and then demand cash payments if the people they guess are black or hispanic seem to be paying higher rates than the people they guess are white. Every time we write about this policy we have to remind ourselves we work for the Journal and not the Onion.
At the heart of the bureau's outrageous regulatory campaign is its March 2013 “bulletin” that effectively codified its policy against dealer discretion in setting interest rates. This Beltway diktat never went through the normal rule-making process.
But on Wednesday a bipartisan bill with 65 Democratic co-sponsors will come to the House floor. The measure would knock down this informal guidance and instruct the bureau to allow public comment and to publish its data and analysis online before issuing new rules on auto financing.
It would also require the bureau to study the costs of such a rule on various affected parties. Imagine that. As for the regulators, they've done enough imagining about this market. Let's hope next time they just stick to the facts.