Consumer Finance Insights
December 12, 2017

Congress Uses CRA to Target CFPB Payday Lending Rule and Auto Lending Guidance

The Congressional Review Act (CRA) provides Congress with oversight over administrative rulemaking, providing it with a veto of sorts over rulemaking with which it disagrees.  For an agency rule to become effective, the agency must submit a report to Congress describing the rule.  Congress then has 60 days to issue a resolution of disapproval by simple majority which, if signed by the President, voids the rule and prohibits the agency from enacting a similar rule in the future without express Congressional authorization to do so.  Congress has already used the CRA to strike down the CFPB’s arbitration rule, and it now has its sights set on the CFPB’s payday and indirect auto lending rules.

On November 30, 2017, the House of Representatives introduced a joint resolution to disapprove of the CFPB’s payday lending rule.  The payday lending rule requires lenders to use an “ability to repay” standard which, in many circumstances, requires lenders to determine whether a borrower can afford to repay the loan during the loan term, taking into account the loan’s fees and charges and the borrower’s other obligations.  While the rule’s purpose is to prevent consumers from falling into “debt traps,” critics of the rule argue that it would cut off consumers’ access to much-needed credit options.  Presently, the resolution of disapproval is pending in the House, and would become effective if passed by the Senate and signed by the President.

Similarly, Senator Pat Toomey (R-PA) asked the Government Accountability Office (GAO) to provide an opinion as to whether the CFPB’s 2013 non-binding guidance on indirect auto financing is subject to disapproval under the CRA.  The indirect auto financing rule concerns the process of marking up the “buy rate” of auto loans, by which auto dealers charge consumers higher interest rates than the rates provided by banks, and pocket the difference.  The CFPB cautioned that this practice could result in pricing disparities on the basis of race, resulting in an Equal Credit Opportunity Act violation by the originating bank, even though the bank did not have a direct role in originating the loan.  The CFPB argued that, because the guidance was non-binding, the guidance was not subject to disapproval under the CRA.  The GAO disagreed, issuing an opinion on December 5, 2017, finding that, although the guidance was non-binding, it is nevertheless subject to disapproval under the CRA because it “advises the public prospectively of the manner in which the CFPB proposes to exercise its discretionary enforcement power.”  Congress has not acted to introduce a resolution disapproving the CFPB’s indirect auto lending guidance, but the GAO’s opinion opened the door for Congress to do just that.

Congress’s recent action in targeting three CFPB rules shows that it is ready and willing to use the CRA to prune CFPB regulations with which it disagrees.  Time will tell the fate of the payday lending and auto-finance rules, but those rules are not likely to be the last to come into Congress’s cross-hairs.  If and when Congress targets another rule for disapproval under the CRA, LenderLaw Watch will be there to cover it.