Why 65 Dems Are Backing A Bill To Strip Financial Protections For People Of Color

It's hard to beat car dealers and banks on Capitol Hill.
William Randall/Getty Images

WASHINGTON -- Progressive Democrats are scrambling to prevent their colleagues from supporting a bill that would pave the way for racial discrimination at car dealerships. The legislation will receive a vote on the House floor this week, and would make it easier for banks and car salesmen to charge people of color higher prices than white customers.

The bill was written by Republicans, but currently has 65 Democratic co-sponsors, a number boosted by its support from two powerful Capitol Hill interest groups: banks and auto dealers. The bill is opposed by Americans for Financial Reform, the NAACP, the Urban League, the National Council of La Raza and others.

The legislation would nullify regulatory instructions issued by the Consumer Financial Protection Bureau in 2013. Those instructions were an effort to counter longstanding trends involving higher interest rates charged to borrowers of color when they take out a car loan.

Although racial discrimination in consumer lending is illegal, it often creeps into the process when a person of color tries to obtain a loan. Banks allow dealerships to issue car loans to their customers. A dealer sends a buyer's credit information to the bank, and the bank then tells the dealer the appropriate interest rate for a borrower with that particular financial profile. But dealers are allowed to charge higher rates at their own discretion -- and the dealers themselves receive a cut of that higher lending price.

This arrangement creates incentives for both the dealership and the bank to inflate interest rates. Lawsuits dating back to the 1990s show that customers of color are more likely to be charged additional interest rates, known as "markups," and that their markup rates tend to be higher than those charged to white borrowers.

The CFPB issued formal regulatory guidance in 2013 encouraging banks to get rid of the markup interest rate system as a way of compensating dealerships for issuing car loans. The CFPB said that banks could continue the markup practice if they took steps to ensure that they would not regularly overcharge borrowers based on race or national origin. The agency has since taken Honda and Ally Bank to task for violating that guidance and overcharging borrowers of color. The CFPB has returned hundreds of millions of dollars to customers who paid higher rates due to no other factor than their race or national origin.

Lobbyists for the auto industry are now trying to overturn the agency's anti-discrimination rule. One major exception to the support from dealers and lenders is the National Association of Minority Automobile Dealers, which is formally opposing the bill.

"Car dealers and lenders are attacking the guidance because they do not want the CFPB to enforce antidiscrimination laws in car lending," the nonprofit group Americans for Financial Reform wrote in a September letter to lawmakers. "They have known for decades that car dealer markups lead to discriminatory lending, and they would prefer the CFPB ignore this particular injustice."

The Congressional Progressive Caucus and Rep. Maxine Waters (D-Calif.), the top Democrat on the House Financial Services Committee, are imploring other members of their party to vote against the legislation. House Minority Leader Nancy Pelosi (D-Calif.) has said she will vote against the bill. The Obama administration issued a statement late on Monday saying it "strongly opposes" the bill, but it stopped short of issuing a formal veto threat.

Waters and others are concerned that significant Democratic support for the legislation will enable Republicans to attach it to must-pass year-end spending bills. There is precedent for this kind of thing: In late 2014, the GOP secured a measure to subsidize risky Wall Street derivatives trading by including it in a bill to fund the government. At the time, Boehner and other Republicans pointed to bipartisan support the legislation had received on the House floor as evidence that the measure was not controversial.

Reps. Keith Ellison (D-Minn.) and Raul Grijalva (D-Ariz.), co-chairs of the CPC, sent a letter to other members of Congress Tuesday urging them to vote against the bill.

"There is no reason why the CFPB should not be able to continue to enforce these rules for indirect auto lenders," the letter reads. "When people are overcharged, they have less money to spend and invest which slows our economy. We urge members to support, not weaken, the CFPB’s effort to fight discrimination in auto lending."

The legislation will likely receive a vote on the House floor Wednesday. Of the 65 Democrats who currently support the bill, 15 are members of either the Congressional Black Caucus, the Congressional Hispanic Caucus or the Congressional Asian Pacific American Caucus. The bill has 101 Republican co-sponsors.

Democratic supporters of the bill include Reps. Ed Perlmutter (D-Colo.), David Scott (D-Ga.), Brad Sherman (D-Calif.), Daniel T. Kildee (D-Mich.), Joyce Beatty (D-Ohio), Sanford Bishop Jr. (D-Ga.), Jim Cooper (D-Tenn.), Lois Frankel (D-Fla.), Ann Kuster (D-N.H.), Kyrsten Sinema (D-Ariz.), Kurt Schrader (D-Ore.), Tim Ryan (D-Ohio), Daniel Lipinski (D-Ill.), Tammy Duckworth (D-Ill.), Madeleine Bordallo (D-Guam), Patrick Murphy (D-Fla.), Brad Ashford (D-Neb.), Henry Cuellar (D-Texas), Frederica Wilson (D-Fla.), Gene Green (D-Fla.), Cheri Bustos (D-Ill.), Peter Welch (D-Vt.), Alcee Hastings (D-Fla.), Sheila Jackson Lee (D-Texas), Suzan DelBene (D-Wash.), Ruben Hinojosa (D-Texas), Steve Israel (D-N.Y.), Eric Swalwell (D-Calif.), Ron Kind (D-Wis.), David Loebsack (D-Iowa), Loretta Sanchez (D-Calif.), Dina Titus (D-Nev.), Marc Veasay (D-Texas), Julia Brownley (D-Calif.), Juan Vargas (D-Calif.), Timothy Walz (D-Minn.), Filemon Vela (D-Texas), Michael Doyle (D-Pa.), Gerald Connolly (D-Va.), Bill Pascrell (D-N.J.), Gwen Graham (D-Fla.), Derek Kilmer (D-Wash.), Kathleen Rice (D-N.Y.), Robert Brady (D-Pa.), Joe Courtney (D-Conn.), Elizabeth Esty (D-Conn.), Tulsi Gabbard (D-Hawaii), Mark Takai (D- Hawaii), Jim Costa (D-Calif.), Collin Peterson (D-Minn.), Norma Torres (D-Calif.), Debbie Wasserman Schultz (D-Fla.), Mike Quigley (D-Ill.), Ted Lieu (D-Calif.), Beto O'Rourke (D-Texas), Ann Kirkpatrick (D-Ariz.), Jared Huffman (D-Calif.), Pete Aguilar (D-Calif.), Alan Grayson (D-Fla.), Kathy Castor (D-Fla.), Ablio Sires (D-N.J.), Corrine Brown (D-Fla.), Donald Norcross (D-N.J.), Sean Patrick Maloney (D-N.Y.) and Sam Farr (D-Calif.).

Zach Carter is The Huffington Post's senior political economy reporter and a co-host of the HuffPost Politics podcast "So That Happened." Listen to the latest episode:

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