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Congressional Review Act Confusion: Indirect Auto Lending Guidance Edition (a/k/a The Fast & the Pointless)

posted by Adam Levitin

Part of the legacy of Newt Gingrich and his Contract with America (can I get damages for breach?) is the Congressional Review Act.  The CRA creates a mechanism whereby Congress can override an agency rulemaking on a simple majority vote in both houses, meaning that it is not subject to the filibuster in the Senate. Congress has only used this tool infrequently, most notably with the CRA resolution overriding the CFPB's arbitration rule. 

Some members of Congress have now turned their CRA sights on various regulatory "guidance" that they find objectionable. This guidance is not formally binding and enforceable law, but other sorts of communications from agencies that help regulated entities understand agency expectations, interpretations, and policies. Among this guidance is the CFPB's Indirect Auto Lending Guidance. I suspect that most of the folks who rail against it have never actually bothered to read it. It's a short document. Most of it is spent explaining what indirect auto lending is. In brief, you can get a car loan from a direct lender who makes the loan directly to you or you can get the loan from the dealer. If you get the loan from the dealer, the dealer will typically turn around and sell the loan to the real lender.  (The exception are buy-here-pay-here used car dealers who keep the loans.)  These indirect lenders include captive finance companies of auto manufacturers, but also banks (e.g., Santander has a large business in this space). The indirect lenders compete for dealer business, not for consumer business, and therein lies the problem. The indirect lenders set a "buy rate"--the minimum interest rate and other terms on the loan at which they will purchase it, but then allow dealers to markup the loan above the buy rate (this is the "dealer reserve," which looks an awful lot like the now-prohibited yield spread premiums on mortgages paid to mortgage brokers).  This sets up a situation in which dealers might engage in discriminatory markups in violation of the Equal Credit Opportunity Act. The question is whether the indirect lenders face any liability for such discriminatory markups.  

The CFPB's Indirect Auto Lending Guidance notes that this is a possibility as indirect lenders can potentially qualify as "creditors" under ECOA. The guidance then goes on to say that because there are compliance risks, here are some things that indirect lenders should consider doing as part of their compliance programs.  Critically, the guidance doesn't actually say that the CFPB believes that dealers ar "creditors" under ECOA, only that it is possible that they could be, nor does it require that dealers do anything.

It's not clear if there are the votes in Congress to pass the CRA resolution, but even if there are, there are still a bunch of legal questions about whether such a resolution can validly be passed in regard to the Indirect Auto Lending Guidance and what its impact would be. These are discussed below the break. My short answer is that it is very questionable whether the CRA has any application of the Indirect Auto Lending Guidance and even if it does, it is unlikely to have much impact as it doesn't invalidate ECOA or ECOA enforcement actions against indirect lenders. This then raises the question of why the (GOP) wants to spend political capital pursuing a rather pointless resolution.  

Is this even a "rule"?

The CRA applies only to "rules."  Is this CFPB's Indirect Auto Lending Guidance a "rule"? Certainly not as anyone colloquially uses that term. In administrative law, "rules" mean notice-and-comment rulemaking, and anything else falls into the residual buckets of guidance or communications. But the CRA defines "rules" as:

the whole or a part of an agency statement of general or particular applicability and future effect designed to implement, interpret, or prescribe law or policy or describing the organization, procedure, or practice requirements of an agency...

Even under this broader technical definition, it's far from clear to me that the Indirect Auto Lending Guidance is a rule. There's other language in the CRA indicating what is meant by a "rule".  The CRA states that a rule may not "take effect," until the rule and its proposed effective date have been transmitted to Congress.  That provision strongly implies that the CRA only applies to rules that have "effective dates," meaning that they are rules that have "effects." Non-binding guidance would hardly seem to fit that description.  How can it have an "effective date" if it doesn't "take effect"?  What would it mean for guidance not to "take effect" if it hasn't been submitted to Congress?  All of this suggests that the term "rule" in the CRA means what we normally think of as a "rule," and not some technical definition.  

Even if one thinks that the technical definition of "rule" is really what applies, does the Indirect Auto Lending Guidance fit that definition?  I think it's questionable. There are three parts to the definition:  

•  First, there must be a "an agency statement of general or particular applicability."  That part is met.  

•  Second, it must have "future effect".  The guidance doesn't have any "effect", so how can it have a future effect if it doesn't bind?  

•  And third, it must be "designed" to "interpret law" or "prescribe ... policy". Note that it is not a question of whether it actually "interprets law" or "prescribes ...policy," but whether it is designed to do so.  That seems to hinge on agency intent, which would seem to require more facts than anyone really has available.  But maybe the "design" can be deduced from the document itself.  That would require evidence that the document is designed to interpret ECOA and Reg B. But if this is an interpretation, it's pretty darn thin.  The guidance states that:

When such [discriminatory pricing] disparities exist within an indirect auto lender’s portfolio, lenders may be liable under the legal doctrines of both disparate treatment and disparate impact.

Noting that an indirect lender could fit the ECOA definition of "creditor" and "may" have ECOA liability hardly seems like an interpretation of law. I'd think of an interpretative rulemaking as stating something like "It is the Bureau's position that an indirect lender that does X, Y, and Z is a 'creditor' under ECOA and Reg B." Nor is the guidance obviously  announcing a policy--it doesn't say, "The Bureau will bring enforcement actions in the following circumstances." Instead, it says:

Institutions subject to CFPB jurisdiction, including indirect auto lenders, should take steps to ensure that they are operating in compliance with the ECOA and Regulation B as applied to dealer markup and compensation policies. These steps may include, but are not limited to ... [X, Y, Z]

 Perhaps there's an implicit enforcement threat, but it's pretty oblique. Instead, I see this guidance as a sort of "heads up, there might be compliance issues here that you guys aren't aware of, so here's what you should be thinking." 

But what about the GAO determination? 

Now, the CRA resolution to repeal the Indirect Auto Lending Guidance relies on a GAO determination, in response to an inquiry from Senator Toomey, that the Guidance is a "rule" for CRA purposes. I don't know why the GAO's opinion matters a whit here. It has no legal effect as far as I can tell, and I don't think it would get any deference from a court. (Indeed, GAO arguably overreached its authority by issuing such an opinion in response to a request from a member of Congress given that the specific tasks allocated to it under the CRA do not include making the determination.) All of which is to say that perhaps this is a rule, perhaps it is, and no one really knows conclusively. 

If this isn't a rule, then what is the effect of a CRA resolution?

It would be a joint resolution signed by the President, but passed according to improper procedure. Perhaps it would still be an effective resolution, as courts aren't going to question the procedures by which a bill was adopted, but I don't think it would get the benefit of the CRA's statutory effect of prohibiting the reenactment of a rule that is "substantially the same." If so, a CRA resolution would have little effect. 

If it is a rule, what then?  

If the guidance is a rule, then a CRA resolution is arguably either too late or too early.  There's an argument that the time line for a resolution has run--I imagine it's sort of a laches argument, and who knows if there are laches against Congress. But if the rule was never presented to Congress, the CRA timeline hasn't been triggered so a resolution is too early, and I again think that it would likely be a valid resolution as far as it goes, but that it wouldn't have the statutory effect of a CRA resolution.  

[Update:  I see from the text of the proposed joint resolution that the guidance--from March 2013--was printed in the Congressional Record in Dec. 6, 2017, the very day after the GAO report came out.  In other words, one of the very first things Mick Mulvaney did upon getting inside the CFPB was to "publish" the guidance, which I assume also means transmission to Congress, which would start the CRA clock. Given the timing, it's apparent that this was on Mulvaney's "to do" list from the get-go and surely pre-dated the GAO report.

Update 5/4/18:  I wrongly assumed that the guidance being printed in the Congressional Record was at the behest of Mick Mulvaney. Apparently it was at the behest of Senator Toomey (R-PA), one of the sponsors of the Joint Resolution. The Senate Parliamentarian has also, I am told, ruled that such publication constitutes transmission to Congress for CRA purposes. If that's correct, I don't understand the ruling, as the CRA requires the transmission to by by the agency.  In any case, it's not clear to me what issues the Senate Parliamentarian has authority to decide--if there's judicial review of some sort I don't know if this determination gets deference.] 

If there is a valid CRA resolution overturning guidance, what does that mean? 

To get to the answer here, let's start with an easier question. Suppose there is a CRA resolution that overturns a rule, as happened with the CFPB's Arbitration Rule. What's the effect of that? According to the CRA, it means that (1) the rule cannot be "reissued in substantially the same form and (2) "a new rule that is substantially the same as such a rule may not be issued." But what does that actually mean?

First, note that the language used is "substantially the same," not "substantially similar" as people often misquote the CRA. That distinction may matter. I read "substantially the same" as arguably requiring at least 50% overlap, if not more. I also read "the same" as requiring something more than "similar." "The same" would seem to imply closer substantive overlap if not actual linguistic overlap. "Similar" seem a more forgiving standard.  

Second, the two prohibitions need to be read with each other. The first prohibition is against reissuance, while the second is against a new rule. What is "the same form" for the first prohibition on reissuance?  Does that mean the same substance or does it mean "the same sort of rule".  That is, if a CRA resolution overturns a rule that is not issued through notice-and-comment, does that then prohibit a later notice-and-comment rulemaking? It's unclear. I think it doesn't under the first prohibition, but the second prohibition is what would prevent that, but that takes us right back to whether it is "substantially the same"? Is a notice-and-comment rule ever the same as one that is not?  Indeed, "the same" might even refer to the process of enactment as much as the substance of the rule. No one really knows because the CRA doesn't explain this, and there's no court cases explicating things not least because the CRA prohibits judicial review. 

Is the CRA justiciable, and who has standing to challenge non-binding guidance? 

Suppose, then, that a CRA resolution overturned a notice-and-comment rulemaking and then an agency reenacted the rule, verbatim. Could a court hear that challenge? I have to think that the answer is yes.  The rule could be challenged under the APA, rather than under the CRA, on the grounds that the agency lacked the authority to enact the rule. It would bootstrap a CRA claim into an APA claim. There's some question of whether this could be done--certainly the agency would argue that the CRA provision is not justiciable.  

The point here isn't whether the CRA is ultimately justiciable, however. Even if it is in the context of a notice-and-comment rulemaking, it's not in the context of non-binding regulatory guidance. Suppose that a CRA resolution overturned guidance and then an agency reenacted the guidance, verbatim. Could a court hear that challenge? Not unless someone had standing to challenge the guidance. And who would?  If it's non-binding guidance, there's no party with standing because there's no injury in fact. Robins v. Spokeo is a two-edged sword it seems.  

The CRA doesn't prohibit enforcement actions (including by state AGs) or informal guidance that aligns with an overturned rule

Let's suppose that an agency were to believe that it were bound by a CRA resolution on non-binding guidance, even if no one would have standing to challenge it. (There's both a principled and a conflicted-agent way for a general counsel to reach that conclusion.) What prevents an agency from simply following the policy announced in the non-binding guidance?  Nothing so far as I can see.  The CRA doesn't have any prohibition against that.  

So to apply this to the CFPB, what would prevent the CFPB from continuing to bring UDAAP and ECOA actions against indirect auto lenders that permit dealers to engage in discriminatory markups? Zilch. Even if there is a valid CRA resolution overturning the Indirect Auto Lending Guidance, indirect auto lenders still face potential ECOA liability for discriminatory markups. A CRA resolution does nothing to change that.  I cannot over-emphasize this point. A CRA resolution doesn't change ECOA and Reg B.

[Update 5/4/18:  I forgot a critical thing about ECOA and Reg B.  Reg B defines "creditor" to include the "assignee" of a creditor if the assignee "participates" in the credit granting decision, including setting the terms of the credit. That would seem to describe the indirect auto lending industry, as dealers generally won't make loans unless they have a buyer lined up for the loan.  This is codified true lender doctrine.  So the guidance really isn't doing anything new, but just reminding lenders about what the law really is, and there's no way the CRA can reach back and void Reg B, even though Reg B substantially expands ECOA's provisions in several places.]

Likewise, what would prevent the CFPB's supervision team from telling indirect auto lenders that they risk UDAAP and ECOA actions if they permit dealers to engage in discriminatory markups?  Again, zilch. The CRA prevents only the reenactment of a rule that is "substantially the same." If there's no "rule," just informal guidance, that's surely not prohibited.  

It's clear that the Mulvaney CFPB isn't going to be pursuing indirect auto lenders for ECOA violations. But Mulvaneyshchina isn't going to last forever, and if you're an indirect auto lender, you might reasonably recall that the statute of limitations for UDAAP and ECOA are three years and five years respectively. Even with a CRA resolution, any indirect auto lender that allows discriminatory markups is taking a gamble that there won't be a more vigorous CFPB in the future that will go after them for ECOA and UDAAP violations that occurred on Mulvaney's watch. And a CRA resolution does not void the consent orders that the CFPB entered into with a number of indirect auto lenders. Those will remain valid.  

Now recall one more thing:  the CFPB Indirect Auto Lending Guidance is just guidance—at most—about how the CFPB interprets ECOA (and I think that's overreading it). The CFPB, however, isn't the only entity that can enforce ECOA or UDAAP.  The DOJ can enforce ECOA and the state attorneys general can enforce UDAAP (and possibly also ECOA if the enumerated consumer laws are incorporated as part of title X of Dodd-Frank). Neither is bound by CFPB guidance. The Massachusetts AG has already gone after discriminatory markups in indirect auto lending. Getting rid of the CFPB guidance doesn't get rid of the state AG enforcement threat. All it does is remove clarity for indirect lenders because to the extent the guidance exists, it may constrain the CFPB. Without the guidance, there are no constraints on how the Bureau proceeds with ECOA enforcement. 

Put this all together and I don't think anyone can have a lot of faith that a CRA resolution on the Indirect Auto Lending Guidance is going to make much of a difference for indirect auto lenders or (and this is the real game, I think) auto dealers.  We might call it "The Fast and the Pointless".  This makes me think that the whole push for a CRA resolution to overturn the CFPB's Indirect Auto Lending Guidance is nothing but demonstrative theater for part of the GOP's base, a basis for passing the collection plate around to auto dealers and indirect lenders, much like the endless attempts to repeal Obamacare were. 

There's a way to test my theory:  if the resolution passes, watch the client alerts and the like that law firms put out. I'm betting that they'll suddenly start pointing out all of the things I've pointed out here--that the CRA resolution in no way gets rid of ECOA liability, even to the CFPB, and that there's a 5-year statute of limitations, so it's best to keep doing business as if the Guidance were still in effect.

Update--Responses to the Ballard Spahr analysis

The good folks at Ballard Spahr disagree with a lot of my analysis. They state that "we are confident that a Court would conclude that the Congressional override is an expression of disapproval of the legal and factual theories of liability expressed in the Bulletin." With all due respect, that has to be wrong.

  • Whether there is assignee liability (as Ballard Spahr describes it) under ECOA (what others might call "true lender" liability for the real "creditor") cannot be determined by the CFPB, much less through guidance.  It's beyond the scope of the CFPB's authority. For example, the CFPB doesn't determine the scope of the private right of action under ECOA, and such a theory would apply there as well.  Therefore disapproval of the CFPB's position cannot affect whether there is such liability generally.  
  • The Guidance is only about indirect auto lending.  But the legal theory of "assignee/true lender" liability applies much more broadly to any sort of indirectish origination.  A joint resolution that disapproves of the auto lending guidance is not a statement one way or another by Congress about the general theory of liability.  
  • The proposed CRA joint resolution just says that the Guidance shall have "no effect."  Is that disapproval of the liability theory or of the suggested compliance steps or both or of something else?  The proposed joint resolutions don't say, and I don't know how Ballard Spahr would know.  My own guess is that many members of Congress who would support the resolution don't actually care if the indirect lenders face ECOA liability. They care about whether dealers will be able to mark up loans. 
  • A court is going to start with the text of the joint resolution.  All it says is that the Guidance shall have "no effect."  It doesn't say anything more than that. It's wishful thinking that even the most anti-regulatory court around is going to latch onto that as the basis for concluding what theories of liability are viable under ECOA.  Ballard might turn out to be right about how courts will read Wal-Mart and Inclusive Communities, but they aren't going to be relying on a CRA resolution regarding disparate impact theories or assignee/true lender liability theories. 

Ballard Spahr also argues that my view that a CRA resolution precludes enforcement actions violates the "Canon of Common Sense," and would "fail to give effect to the will of the People as reflected in an act of Congress that was approved by the President of the United States."

  •  It's ironic to see a defense firm fall back on this sort of legislative intent argument.  Note the potential positional conflict.
  • Reliance on grandiose and vague "will of the People" language, is also a glaring sign that there's not good substantive argument.
  • The Ballard argument is flawed because it rests on an incorrect assumption that a CRA resolution is an affirmative statement of policy. But that's not how CRA resolutions work. They are a rejection of a particular rule under special summary procedure, nothing more. There are all kinds of reasons a particular rule might be rejected. If Congress wanted to say "no liability for indirect auto lenders under ECOA" it is free to do so.  But an affirmative law requires a different process (60 votes in the Senate) than a negative law under the CRA.  Were it otherwise, why not interpret the CRA resolution as Congress disapproving of the CFPB bringing any enforcement actions on anythingWithout a textual hook, the "will of the People" argument proves too much. As Llewylln's response to the "statute's purpose" argument goes, "a statute cannot go beyond its text."  That's also important for upholding democracy.  Otherwise, we'd find ourselves pushing the envelope far too readily.  
  • Reg B already clearly covers indirect auto lenders as creditors, so an enforcement action would not be going beyond a long standing regulation.

Ballard Spahr also suggests that it would be outrageous for the CFPB to bring a UDAAP action over an arbitration clause after the CRA resolution overturning the arbitration rulemaking. The arbitration rulemaking, however, was not undertaken under the UDAAP power. It was undertaken under the CFPB's separate, free-standing power to curb arbitration. Congress hasn't said a word about what it thinks regarding arbitration in terms of UDAAP.  I think there's a blank slate regarding UDAAP enforcement and arbitration.  Given the CFPB's Freedom Stores consent order regarding forum selection clauses, it's easy enough to see a UDAAP theory regarding arbitration.  There's also a separate question about whether a UDAAP-based arbitration rulemaking would be "substantially the same".

The big point here, though is that CRA resolutions are a special type of very narrow, negative legislation saying "rule X is not in effect."  There's questions about how that then affects subsequent rules under the "substantially the same" standard, but it doesn't expressly preclude anything else an agency might do--enforcement, other forms of guidance that do not amount to being a "rule" such as supervisory feedback, and adjudication. The CRA's drafters certainly knew of adjudication as another category of what agencies do, yet they said nothing about it.  Expressio unius est exclusio alterius.  If we're serious about the will of the People, what about the will of the 1996 Congress that passed the CRA? They were very clear about what the CRA precluded--subsequent rules that are substantially the same. They were silent about anything beyond that, and that implies that the did not want it to reach any further. 

Ballard Spahr claims to be confident about how a court would interpret a CRA resolution. One might disagree with my arguments here, but they are at the least plausible. I appreciate Ballard Spahr's bravado, but I can't imagine that they would ever put this "confident" claim in an opinion letter to a client, which is the ultimate shibboleth. The CRA has substantial limitations as a deregulatory tool. 


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