Senate Votes to Make American Auto-Lending Racist Again

Deal with it. Photo: Daniel Acker/Bloomberg via Getty Images

Just a few weeks ago, it looked like America might weather the remainder of the Trump presidency without taking on any more (major) legislative damage. Paul Ryan’s plan to take food and medicine from the indigent (a.k.a. “welfare reform”) — and Donald Trump’s proposal to slash legal immigration in half — were both dead on arrival in the Senate. The House could hold a show vote on a “balanced budget amendment,” but that ludicrous concept would never make it past a filibuster. Thus, with most election forecasters projecting a Democratic takeover of the House this fall, there was good reason to think that congressional Republicans would never pass another piece of significant legislation by a party-line vote on President Trump’s watch.

And then, Senate Republicans discovered a new way to abuse the Congressional Review Act (CRA).

The CRA is an obscure 1996 law that empowers Congress to repeal any regulations — that were issued by the Executive Branch within the final 60 days of the previous legislative session — by a simple-majority vote in both chambers. Before Trump took office, the CRA had only been used to strike down one federal regulation in its 21-year history. Congress had, historically, been reluctant to use the law because regulations overturned through the CRA can never be reinstated by the Executive branch again, absent congressional approval.

But the Trump-era GOP seemed to see this aspect of the CRA as a feature, not a bug. And promptly after taking power in 2017, congressional Republicans began deploying the CRA with unprecedented frequency. The party used the law to nullify a wide variety of Barack Obama’s final regulations, thereby expanding the liberty of coal companies to dump mining waste in streams; preserving the rights of retirement advisers to gamble with their clients’ money; allowing internet-service providers to track and sell consumers’ data without seeking their permission; banning states from setting up retirement savings plans for private-sector workers (a betrayal of federalism that served no purpose beyond eliminating one of Wall Street’s potential competitors); freeing employers from the burden of logging all workplace injuries; and ending discrimination against serial labor-law violators in the bidding process for government contracts.

There was a lot more that Mitch McConnell & Co. wanted to accomplish on the deregulatory front. Senators Pat Toomey and Jerry Moran were especially passionate about rolling back safeguards against racial discrimination in auto-lending. But that rule, like so many other Democratic assaults on individual liberty, had been established years ago — and thus lay outside the reach of the CRA.

Or so we thought: While hunting for loopholes that would allow Republicans to kill more regulations that their corporate donors hate, Toomey made two potentially transformative discoveries.

The CRA requires federal agencies to submit all rules to Congress for potential disapproval.

Federal agencies have not typically abode by that process for all regulatory decisions, but only for formal rules. For example, when an agency issues “regulatory guidance” — a clarification of how an existing regulation should be interpreted and enforced — it almost never submits that decision for congressional review.

Thus, if “regulatory guidances” qualified as legal “rules,” under the CRA, then the clock for congressional review on such decisions never started because the rules were never formally submitted. And that would mean that Republicans would suddenly gain the power to kill decades of regulatory decisions through party-line votes.

In December, while national attention was focused on the Trump tax cuts and Mueller probe, Toomey got the Government Accountability Office to agree that regulatory guidances were, in fact, rules. And on Wednesday, Republicans took their new deregulatory vehicle out for a test drive — by repealing safeguards against racial discrimination in auto-lending.

Specifically, by a 51 to 47 margin, the Senate voted to undo the Consumer Financial Protection Bureau’s guidance targeting discrimination in “dealer mark-ups.” MarketWatch offers a succinct summary of the rationale behind the CFPB’s rule:

When consumers make purchases at auto dealerships, the dealer often directs the consumer to a third-party lender for financing, the CFPB wrote. During that process, the lender usually tells the dealer an interest rate it will accept for each consumer.

That allows auto dealers to charge the consumer a higher interest rate if they want, known as a “dealer markup.” Then, the lender shares part of the markup with the dealer. Those markups give dealers more compensation, while giving them the ability to charge consumers higher rates, regardless of their creditworthiness, the CFPB said.

That amount of discretion increases “the risk of pricing disparities among consumers based on race, national origin, and potentially other prohibited bases,” it wrote.

Therefore, the bureau recommended that indirect auto lenders take all necessary steps to ensure that they were not complicit in violations of the Equal Credit Opportunity Act, which bars discrimination in all forms of lending.

And when such lenders failed to do so, the CFPB made them pay. As Vox notes:

In December 2013, the CFPB and the Justice Department ordered Ally Financial to pay $80 million in damages and $18 million in penalties after finding more than 235,000 nonwhite buyers paid higher interest rates for auto loans between April 2011 and December 2013. The CFPB and the Justice Department also penalized Honda, Toyota, and Fifth Third Bank over car lending discrimination.

This did not please auto lenders. And so, even though recent research has confirmed that racial discrimination in auto-lending remains pervasive, Mick Mulvaney made undermining enforcement of the CFPB’s rules against that practice one of his top priorities after taking the agency’s reigns. And now, 50 Republicans (and Joe Manchin) have voted to bar the next Democratic administration from reinstating those rules, absent an act of Congress.

This would be concerning enough, in and of itself. But Wednesday’s vote may be most alarming for the precedent that it establishes. There are armies of corporate lobbyists in D.C., working full-time to find and exploit opportunities to roll back rules that inconvenience their paymasters. The beneficiaries of those regulatory protections don’t have anywhere near the same lobbying resources. Until now, this asymmetry has been partially offset by the formal difficulty of abolishing regulatory protections, once they got on the books. But if 51 senators can kill any piece of regulatory guidance — without holding a single hearing, or demonstrating that the costs of that rule outweigh the benefits — then many of the American public’s financial, environmental, labor, and safety protections could soon be drained by the swamp.

“It’s a hugely important precedent,” Toomey told Politico this week. “It’s potentially a big, big opening.”

Senate Votes to Make American Auto-Lending Racist Again