By Charlene Crowell
America is often touted as a nation of laws, and not of men. But it seems that today some lawmakers have no interest in upholding laws that mandate fairness in financial services – particularly when consumers of color are affected.
On April 18, the U. S. Senate voted 51-47 in support of S.J. Res 57, a joint resolution to revoke the Consumer Financial Protection Bureau (CFPB)’s 2013 guidance on indirect auto lending. The previous day, the Trump Administration issued a statement in support of the rollback.
Among those voting against the resolution was Connecticut Senator Richard Blumenthal who issued a statement following the unfortunate vote.
“Perpetuating predatory practices that lock consumers of color into higher auto loan interest rates doesn’t just harm those individuals, it exacerbates ethnic and racial wealth disparities that feed into the deep inequality that exists in our country today,” said Blumenthal.
But Senate Majority Leader Mitch McConnell of Kentucky welcomed revisiting auto lending regulation. “Our whole economy is getting a tune-up. And now it’s time for the front end of the auto industry to come along for the ride,” said McConnell in a related article.
What the senior Senator from Kentucky does not seem to know is that consumers of color, especially Blacks and Latinos, already know too well how it feels to be taken on the wrong ride in auto finance.
Scrutiny is also warranted for the 51 Senate colleagues who agreed with Majority Leader McConnell. In fact, among Senators serving as co-sponsors of the ill-advised resolution were representatives of Alabama, Arkansas, Florida, Georgia, Louisiana, Indiana, Mississippi, Missouri, North Carolina, Ohio, Nevada, Pennsylvania, South Carolina, Tennessee, Texas and Wisconsin. In all, 22 Senators lent their names and influence as co-sponsors.
The Senate vote came five years after CFPB’s blueprint for lenders and auto dealers underscored standards set by the Equal Credit Opportunity Act (ECOA). This act makes it illegal to discriminate due to race, or other protected classes in credit transactions. Under ECOA, indirect auto lenders (those who finance loans through dealers) are creditors and must uphold the law.
Following a long history of documented discriminatory effects in auto finance, CFPB acted in 2013 to provide clear guidelines to lenders on how to avoid discrimination going forward. Following the guidance, CFPB, jointly with the Department of Justice, reached a series of settlements totaling more than $140 million with Ally Financial, Fifth Third Bank, and the financing arms of auto manufacturers Honda and Toyota—all because their pricing models showed discriminatory effects on borrowers of color.
The odds of predatory auto finance increase when consumers of color are involved. For years, consumers suspected and then began to complain of unfair practices in auto finance. By the mid-1990s, a series of related lawsuits were filed, all alleging that consumers of color received higher interest rates than those given to similarly-situated white borrowers. Oftentimes, the higher rates charged to borrowers of color were not related to their creditworthiness. This contention was documented earlier this year by the National Fair Housing Alliance. This housing advocate’s investigation found that better qualified non-White testers participating in an investigation of auto lending would have paid an average of $2,662.56 more than less-qualified White counterparts.
Now multiply that average over-payment by the millions of people who rely upon auto dealers to provide a finance package for their purchase. Nationwide, an estimated 80 percent of auto loans are financed through auto dealers. Dealers are also allowed to increase the interest rate on auto loans, and keep some or all, of the padded costs that typically range an additional 2.0-2.5 percent above the actual lender’s rate. As a result, affected consumers wind up being bilked out of $25 billion over the life of auto loans made during a year.
Personal transportation can be the difference between accessing employment, health care, educational opportunities, or even day-to-day living needs. In many locales, owning a car is the only way to reliably reach these and other destinations.
Auto finance is also the third largest category of consumer debt, after housing and student loans. With rising purchase prices, many auto financers offer extended payments of 72 months or longer to sell consumers an “affordable” monthly payment. Should finance and interest charges be predatory in nature, affected consumers can wind up paying more in interest than for the value of the vehicle.
Regardless of the next proposed regulatory rollback, one thing is clear: Civil rights and consumer advocates will remain united and dedicated to fair and equal lending.
“Charging people of color more money for their auto and financing is not only immoral, but it’s illegal and it drains a family’s household income,” said Wade Henderson, Senior Advisor at the Center for Responsible Lending. “This important guidance should stay intact.”
“Our elected leaders should look for ways to keep consumers from being discriminated against instead of making it easier for them to be preyed upon,” noted Samantha Vargas Poppe, Associate Director of Policy & Advocacy, UnidosUS. “CFPB’s guidance addressed these financial abuses and should be supported by Congress, not repealed.”
“For more than 109 years, the NAACP has worked to remove discriminatory barriers to equal protection and equal opportunity under law,” noted Hilary O. Shelton, Director, NAACP Washington Bureau and Senior Vice President for Policy and Advocacy. “Our fight to strengthen and implement crucial protections to limit and end racial discrimination in lending is as important today as when we were founded in the early 20th century.”
In the 21st century, the journey towards justice must continue.
Charlene Crowell is the Center for Responsible Lending’s deputy communications director. She can be reached at [email protected].