Review & Outlook
The Washington War on Car Dealers
Dodd-Frank’s new consumer bureau sparks a bipartisan backlash.
Aug. 2, 2015 6:00 p.m. ET
Photo: Getty Images It’s been a tough few days for Washington’s least accountable regulator. First a unanimous federal appeals-court panel allowed a constitutional challenge to the Consumer Financial Protection Bureau. Then the House Financial Services Committee voted last week 47-10 to rein in one of the bureau’s misguided assaults on American business.
The consumer bureau has been waging a proxy war against car dealers by shaking down the banks that provide auto loans, which the dealers then offer to car buyers. The bureau’s political activists don’t like that some borrowers pay higher rates than others, and they believe racial discrimination is the reason.
But lacking hard evidence, they’ve embraced a method of guessing which customers are black and which ones are white based on their last names and addresses. Then the regulators demand settlements from banks and finance companies whenever it looks like the customers the regulators guess are white appear to be getting a better deal than the ones they guess are black.
The goal is to extract cash and get banks to agree to limit dealer discretion in offering different rates.
Under long practice, banks set the terms under which they’re willing to buy a loan. Then the dealer can decide to charge a higher rate to the customer and make additional profit, or perhaps accept no profit on the loan in order to close the sale of a car. The decision depends on what the customer is willing to pay for the car and financing—and how much the dealer wants to move the metal.
But this kind of commercial activity between consenting adults is anathema to the bureau. So in March 2013 it issued a “bulletin” that effectively codified its policy against dealer discretion.
Never mind that the plain language of Dodd-Frank explicitly prohibits the bureau from regulating car dealers.
Since this is the Obama Administration and since the bureau was staffed by Elizabeth Warren before her election to the Senate, the activists who run the place are also less concerned with legal niceties than with sticking it to business. So they skipped normal federal rule-making procedures, including allowing public comment on a draft regulation, before warning auto lenders that allowing dealers to exercise discretion presented “a significant risk” of “pricing disparities on the basis of race” and therefore potential legal violations.
All of this has proven too much even for many House Democrats. “A formal policy change should be done through the rule-making process,” says a spokeswoman for Rep. Ed Perlmutter (D., Colo.), one of 55 Democratic co-sponsors of a bill to nullify the 2013 bureau guidance.
The bill, which is now headed to the House floor, would require the bureau to allow public comment and publish its data and analysis online before issuing new rules on auto financing. It would also require the agency to study the costs of such guidance for consumers as well as for small businesses and other affected enterprises.
All of this ought to be the bare minimum for any Washington regulator, but with the rogue consumer bureau it requires a new act of Congress. Behold the practical damage of Warrenism.
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