Trump reverses Obama-era rule designed to prevent racial bias by car dealers

Rule targeted 'dealer markups' that disproportionately affect minorities

Donald Trump speaks at the East Room of the White House (Alex Wong/Getty Images)

President Donald Trump has signed legislation rolling back auto-lending guidance designed to protect minorities from discrimination by car dealers.

Congress voted last month to overturn guidance from the Consumer Financial Protection Bureau (CFPB) that targeted “dealer markups” – interest rate hikes that auto dealers place on third-party auto loans to make a profit. Mr Trump signed the bill into law on Monday in a private session.

Studies have shown minorities are regularly charged more for dealer markups than white buyers with similar credit. The CFPB warned dealers in 2013 against using these markups, saying they could lead to a lawsuit from the agency. Since then, the bureau has penalised major companies like Honda, Toyota, and Ally Financial for lending discrimination.

But opponents of the rule said it overstepped the bureau’s mandate and stifled business growth. Some Republicans, such as Representative Jeb Hensarling, also questioned the methods of studies showing racial discrimination.

CFPB acting Director Mick Mulvaney praised the law’s passage on Monday, saying he was “heartened that the people, through their elected representatives, have corrected this instance of Bureau overreach”.

Activist groups, meanwhile, said racial discrimination in auto lending was well documented, and that repealing the regulation would allow it to fester.

“Years of data make clear that racial discrimination harms the economic viability of families of colour, especially those who are low-income, where a car is often one of the biggest purchases made by a household,” Rebecca Borné, Senior Policy Counsel at the Centre for Responsible Lending, said in a statement before the Senate vote last month.

“The CFPB has found discriminatory pricing in the auto financing market and should have the ability to use the full range of its regulatory tools and authority to address it,” she added.

The law was also controversial for the precedent it set in Congress. Legislators passed the bill using the 1996 Congressional Review Act, which allows Congress to undo regulations from a federal organisation with a simple majority vote within 60 legislative days of their enactment.

The auto lending regulation, however, was passed nearly five years ago. Members of Congress used a newly discovered loophole to override the regulation anyway, opening the door to the repeal of numerous other regulations.

More than 60 organisations – including the American Association for Justice and NAACP – signed on to a letter opposing the bill last month, claiming it would set a “dangerous precedent”.

“Using the CRA, rather than regular legislative order, to attack years-old established guidance would be an extraordinary and egregious abuse of normal process – exactly the kind of rigged action on behalf of narrow corporate insiders that so infuriates Americans of all political stripes,” the organisations wrote.