NEW YORK (IFR) - The US Senate on Wednesday invalidated Obama-era guidance aimed at preventing auto lenders from charging borrowers higher rates based on factors such as race or national origin.
The Senate voted 51 to 47 to disapprove the guidance, which was issued in 2013 by the Consumer Financial Protection Bureau and regarded by critics as an overstep of the agency’s powers.
“An ill-advised Obama-era auto-lending rule issued by the CFPB missed the mark on both process and substance,” Republican Senator Jerry Moran, who sponsored Wednesday’s disapproval resolution, said this week.
The guidance was meant to hold lenders that offer auto loans through dealerships responsible for any discriminatory pricing based on factors such as race, religion, sex or national origin.
It targeted dealer mark-ups, or additional interest auto dealers can charge for loans they originate for third-party lenders.
Dealers can receive compensation from the lenders if they manage to charge the borrowers a higher rate, but the CFPB has warned the practice could result in illegal discrimination.
Critics of the guidance have argued that the compliance cost has been a burden for financial institutions, that metrics used by the CFPB to determine discrimination were flawed and that the agency does not have authority to regulate loans issued by dealerships.
In December, the Government Accountability Office determined the guidance document amounted to a formal rule and as such should have been subject to Congressional review - opening the door for Wednesday’s vote.