Bad to the Loan

Local congressmen grapple with consumer-protection politics

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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In the 2006 settlement agreement, TMCC admitted no liability or wrongdoing as it agreed to implement “markup caps” on interest rates offered to consumers by dealers. Toyota was not accused of active discrimination against potential buyers, only that its policies and practices could—and did—lead to discrimination.

But there was a catch, says Stuart Rossman, director of litigation for the National Consumer Law Center, which brought the suit: the settlement agreement had a three-year sunset provision.

“Therefore, around 2010—three years after the effective date of the settlement—TMCC’s obligation to maintain its markup caps expired,” Rossman says via email. “Apparently they reverted to prior practice, which resulted in the DOJ/CFPB investigation and 2016 consent decree.”

In an interview, Huffman downplayed the $12,500 in campaign contributions the auto dealership lobby sent his way and said that there were good reasons to go along with the GOP bill, which he said was mischaracterized by opponents, not to mention reporters. His 2nd Congressional District includes strings of auto-dealerships along Highway 101 in Marin and Sonoma counties, and Huffman says that he heard from the car dealers, even as he expressed surprise at the contributions they sent his way.

“Nobody is saying, turn a blind eye to auto-loan discrimination,” Huffman says. “I was hearing from car dealers in my district. But put aside the prevailing paradigm where people say it’s about campaign donations, I’m just trying to do the right thing. I heard from them that it could drive up the cost of car loans and make them less accessible to some of those people—I felt like I had to listen to that side of the argument.”

Huffman also highlighted that HR 1737 did have support from members of the Congressional Black Caucus. On the other hand, minority-group opposition to the bill included the NAACP and the National Association of Minority Auto Dealers. Huffman added that he didn’t want to support a bill sponsored by an opposition party set on undermining or destroying the CFPB, but said that HR 1737 was an exception and “is not the thread that undoes the whole fabric.”

“I’m a big fan of the CFPB,” Huffman says, “and start with a position of strong support for their mission.”

The bill he signed, he says, “did not say that we don’t have a problem with potential discrimination or that this agency should not get involved with it.” He says the point of the bill was to get the CFPB to utilize better data “that was more inclusive of other input.”

Thompson’s relationship with the auto industry goes deeper than Huffman’s.

His 5th Congressional District includes the Port of Benicia in Solano County—entry point for all Toyotas that are sent off to dealers in Northern California. According to freight data posted by California Department of Transportation and other online sources, the Port of Benicia processes hundreds of thousands of Toyotas, Chryslers, Fords and Chevrolets a year.

Thompson’s office did not respond to the greater part of a set of emailed questions sent to his office, including whether his yes vote on 1737 was influenced by local issues—such as jobs at the port—back in the district. Nor did his office respond to a question about the CFPB’s proposed federal rules on payday lenders—or the GOP-led, Wasserman Schultz–supported effort to delay them.

Huffman says he continues to be a strong supporter of the CFPB—and of payday-lender reform—and that his vote on
HR 1737 was the only time he’s voted against a CFPB rule.

“You don’t need this rule to crack down on auto discrimination,” Huffman says, as he described it as “a supplement” to private actions that can be undertaken by plaintiffs’ lawyers or by action taken by other federal agencies.

But Rossman says the CFPB rule is especially needed, given that it has become harder in recent years to launch a class-action suit similar to Baltimore, which relied on information from driver’s licenses to ascertain who was a part of the impacted class. Critics of the CFPB auto-loan rule have said that its data-collection methodology is inadequate—even as some of that data has become more difficult to gather, especially when it comes to the race of a loan applicant. “Take in more data,” Huffman argues, “and don’t make [the rule] inadvertently work against the people you are setting out to help.”

Rossman notes that recent changes in class-action certification rules implemented by the Supreme Court, “and the fact that most states no longer include race data on their driver’s licenses, would have made our cases from the earlier 2000s or any applicable private right of action under the Equal Credit Opportunity Act much more difficult to pursue. We believe that there should be strong enforcement of the anti-discrimination provisions of the ECOA. There also should be greater access to information regarding the race of individuals who receive auto loans.”

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