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Bad to the Loan

Local congressmen grapple with consumer-protection politics


BUMPY ROAD  A GOP-led bill to block efforts to stop car loan racial discrimination found two seemingly unlikey supporters: Congressmen Mike Thompson and Jared Huffman.
  • BUMPY ROAD A GOP-led bill to block efforts to stop car loan racial discrimination found two seemingly unlikey supporters: Congressmen Mike Thompson and Jared Huffman.

There was a fiery hearing of the U.S. Senate Committee on Banking, Housing and Urban Affairs on April 5.

If you saw the highlight reel, it featured Sen. Elizabeth Warren scolding a former (and now disgruntled) staffer she hired at the Consumer Financial Protection Bureau (CFPB), the agency she spearheaded and which is now under intense scrutiny by congressional Republicans intent on reining in its regulatory overreach—or ending it outright.

So why did two local Democrats recently vote in favor of an anti-CFPB bill foisted by the GOP House majority?

Just before Thanksgiving last year, U.S. Reps. Mike Thompson, D-St. Helena, and Jared Huffman, D-San Rafael, voted with the majority to nullify new anti-discrimination guidance from the CFPB, which was directed at auto dealerships and the loans they offer to consumers.

The bill supported by Huffman and Thompson, HR 1737, was a reaction to the CFPB's 2013 instructions to auto dealers to limit, or eliminate, salespersons' discretion in interest-rate markups for would-be buyers, as a way to combat racial bias from seeping into negotiations on the sales floor. Loan markups based on race are outlawed under the Equal Credit Opportunity Act.

A bipartisan majority supported the GOP-led pushback to the CFPB guidance in the form of HR 1737; a companion bill in the Senate, S 2663, has been assigned to that same committee where Republicans spent the day disparaging CFPB on April 5. The vote on HR 1737 came amid furious backlash to the CFPB from the conservative American Action Network, which likened the agency to the Soviet Union in a TV ad buy that came just weeks before the auto-loan vote last November. The commercial depicted the CFPB as a rogue, Kremlin-esque agency acting without oversight and came complete with comparisons of Elizabeth Warren to Joseph Stalin. Talk about "overreach."

Several issues that the consumer agency has taken on have come to a head in recent months—proposed federal regulations for payday lenders notable among them—but the auto-loan debate heated up just as the CFPB was hashing out a $22 million anti-discrimination consent decree with the Toyota Motor Credit Corporation (TMCC) in February.

The agency reached that agreement with the assistance and leverage of the U.S. Department of Justice—and the TMCC agreed, as part of the deal, to modify its policies around interest-rate markups.

A CFPB spokesman said he couldn't comment on the fate of the recent CFPB auto-loan settlement, given the pending legislation now before the Senate. "CFPB is committed to creating a fair auto-finance marketplace for all consumers," says CFPB spokesman Sam Gilford, "and has continued to work to ensure that lenders comply with the Equal Credit Opportunity Act."

The House bill to reject and redo the CFPB rule on auto-loan markups was strongly supported by the National Automotive Dealership Association, a leading auto-industry lobby. The association has contributed $45,500 to Mike Thompson's campaigns for Congress since 1999, according to records at the Center for Responsive Politics' online database, OpenSecrets. Thompson has accepted an additional $8,500 from other auto-industry interests since 1999. For his part, Huffman has accepted $12,500 from the association in his congressional races, according to OpenSecrets.

In their vote against the CFPB guidance on auto loans, the local representatives were joined by Rep. Debbie Wasserman Schultz, chair of the Democratic National Committee, and more than 80 other House Democrats. The California Democratic delegation was split, 17 in favor and 20 opposed to the House bill.

Wasserman Schultz made headlines recently when she sided with a Republican-led effort to delay, by two years, the implementation of new federal payday-lender rules issued by the CFPB. The Florida congresswoman—now known to some as "DINO Debbie" for her embrace of the GOP's anti-CFPB mantle—was taken to the proverbial barn after it was revealed that she had accepted $68,000 from her state's payday-lender industry, even as she was urging Democrats to sign on to the GOP-led payday-loan bill.

"The congressman is a strong supporter of the CFPB," says Thompson spokesperson Megan Rabbitt via email, adding that Thompson's vote on 1737 was taken to "make the process by which the CFPB regulates auto lending more transparent by requiring a public notice and comment period before issuing guidance. The congressman believes that the CFPB can and should issue guidance to address discrimination in auto lending, but that the process for doing so should be open and transparent."

The pushback to the CFPB's auto-loan guidance comes as the agency has already aggressively pursued settlements in favor of consumers. The February consent-decree with TMCC is the tip of the CFPB iceberg on the auto-loan issue, as the agency has in a few short years leveraged some $200 million in fines against the auto-financing divisions of Toyota, Honda, Ally (formerly GMAC) and other companies, Gilford says.

But here's the thing: TMCC already reached a multimillion-dollar settlement on auto-loan discrimination in a federal class-action lawsuit that predated the advent of the CFPB. The suit, Baltimore v. TMCC, was settled in 2006 and turned on claims of racial discrimination in auto-loan markups offered by the Japanese auto giant at its dealerships. The class-action suit worked its way through the courts for about five years before a settlement of between $159 and $174 million was reached that affected thousands of African-American and Hispanic customers, according to online information posted by Lieff Cabraser, a plaintiffs' firm that was involved in the suit.

The February settlement between CFPB and TMCC was directed at African Americans and Asians who had experienced discrimination. The Baltimore suit had a local hook, as it included a state action, Herra v. TMCC, that had originated in San Francisco Superior Court before being enfolded into the federal lawsuit.

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