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CFPB Director Failed to Heed Attorney Advice on Auto Lending Rule, Likely Violated Federal Law

Washington, Jan 18 -

Consumer Financial Protection Bureau (CFPB) Director Richard Cordray may have violated federal law that governs agency rulemaking procedures, according to an investigative report released today by Republican members of the House Financial Services Committee.

The report, based on internal CFPB documents obtained by the committee, uncovers several potential legal problems with the Bureau’s 2015 rule authorizing it to regulate the auto lending market. 

One is Cordray’s failure to heed CFPB attorneys who advised him to publish a list of institutions the Bureau believed would be subject to the proposed rule and to re-open the public comment period after it had closed.

Despite the recommendations of CFPB attorneys who warned him of the legal implications of failing to re-open the comment period, Director Cordray approved issuing the Final Rule without disclosure and public comment on the data underlying the rulemaking.

The report also demonstrates that under recent Supreme Court precedent, the CFPB’s use of the “disparate impact” legal theory in enforcement actions against auto financers would not survive judicial scrutiny.

“Fuzzy logic and false comparisons are unfortunately prevalent in the CFPB’s auto-lending actions,” the report states. “In every aspect of the CFPB’s auto-lending actions, the CFPB’s lack of rigor leads to unsupported and unreliable conclusions.”

This is the third investigative report released by committee Republicans over the last 14 months about the CFPB’s troubled efforts to regulate auto lenders.  All three reports relied on internal CFPB documents.

The first report, issued in Nov. 2015, revealed that Cordray was aware the statistical method it used to allege racial discrimination in auto lending is “prone to significant error” and that Bureau lawyers had warned him of the “weakness” of the disparate impact theory it relied upon to build discrimination cases against auto lenders.

The second report, issued in Jan. 2016, disclosed that Cordray approved the distribution of $80 million in settlement proceeds from a discrimination case without verifying that the recipients were eligible to receive the money.  The result was that some white borrowers received settlement checks over alleged racial discrimination against African-Americans, Hispanics and Asians.

“Once again we see the CFPB is a dangerously out-of-control, unconstitutional and unaccountable bureaucracy.  It is a case study in the overreach and pathologies of the regulatory state run amok.  The Bureau routinely abuses and exceeds its authority, robs consumers of their economic freedoms, increases consumer costs and often attempts to hide information from the public,” said Committee Chairman Jeb Hensarling (R-TX). 

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