[Congressional Record Volume 163, Number 199 (Wednesday, December 6, 2017)]
[Senate]
[Pages S7888-S7889]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                           GAO CFPB RESPONSE

  Mr. TOOMEY. Mr. President, I ask unanimous consent that a letter from 
the Government Accountability Office, GAO, be printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                                                   U.S. Government


                                        Accountability Office,

                                 Washington, DC, December 5, 2017.
     Subject: Bureau of Consumer Financial Protection: 
         Applicability of the Congressional Review Act to Bulletin 
         on Indirect Auto Lending and Compliance with the Equal 
         Credit Opportunity Act

     Hon. Patrick J. Toomey,
     U.S. Senate.
       Dear Senator Toomey: You asked whether a Bulletin issued by 
     the Bureau of Consumer Financial Protection (CFPB or the 
     Bureau) on March 21, 2013, on Indirect Auto Lending and 
     Compliance with the Equal Credit Opportunity Act is a rule 
     for purposes of the Congressional Review Act (CRA). CRA 
     establishes a process for congressional review of agency 
     rules and establishes special expedited procedures under 
     which Congress may pass a joint resolution of disapproval 
     that, if enacted into law, overturns the rule. Congressional 
     review is assisted by CRA's requirement that all federal 
     agencies, including independent regulatory agencies, submit 
     each rule to both Houses of Congress and to the Comptroller 
     General before it can take effect. For the reasons discussed 
     below, we conclude that the Bulletin is a general statement 
     of policy and a rule under the CRA.


                               BACKGROUND

                             CFPB Bulletin

       When consumers finance automobile purchases from an auto 
     dealership, the dealer often facilitates indirect financing 
     through a third-party lender, referred to as an indirect auto 
     lender. In the Bulletin, CFPB ``provides guidance about 
     indirect auto lenders' compliance with the fair lending 
     requirements of the Equal Credit Opportunity Act (ECOA) and 
     its implementing regulation, Regulation B.'' Specifically, 
     the Bulletin relates to policies used by some indirect auto 
     lenders that allow dealers to mark up the interest rate 
     charged to the consumer above the indirect auto lender's 
     ``buy rate.'' The lender then compensates the auto dealer 
     based on the difference in interest revenues between the buy 
     rate and the actual rate charged to the consumer in the 
     contract executed with the auto dealer. In the Bulletin, CFPB 
     states that the incentives created by such policies allow for 
     a significant risk for pricing disparities on the basis of 
     race, national origin or other prohibited bases.
       The fair lending requirements of ECOA make it illegal for a 
     creditor to discriminate in any aspect of a credit 
     transaction on the basis of race or national origin, among 
     other characteristics. The term ``creditor'' is defined to 
     include ``any assignee of an original creditor who 
     participates in the decision to extend, renew, or continue 
     credit.'' Regulation B, which implements ECOA, further 
     defines a creditor to expressly include an ``assignee, 
     transferee, or subrogee of the creditor'' who ``in the 
     ordinary course of business, regularly participates in a 
     credit decision, including setting the terms of the credit.'' 
     In the Bulletin, CFPB states that there are a variety of 
     practices used by indirect lenders, but that information 
     collected ``suggests that the standard practices of indirect 
     auto lenders likely constitute participation in a credit 
     decision under the ECOA and Regulation B.''
       In the Bulletin, CFPB discusses the legal theories under 
     which indirect auto lenders who are determined to be 
     creditors under ECOA could be held liable for pricing 
     disparities on a prohibited basis when such disparities exist 
     within an indirect auto lender's portfolio. In its final 
     section, the Bulletin states that 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,'' and then lists a 
     variety of steps and tools that lenders may wish to use to 
     address significant fair lending risks.

                      The Congressional Review Act

       CRA, enacted in 1996 to strengthen congressional oversight 
     of agency rulemaking, requires all federal agencies, 
     including independent regulatory agencies, to submit a report 
     on each new rule to both Houses of Congress and to the 
     Comptroller General before it can take effect. The report 
     must contain a copy of the rule, ``a concise general 
     statement relating to the rule,'' and the rule's proposed 
     effective date. In addition, the agency must submit to the 
     Comptroller General a complete copy of the cost-benefit 
     analysis of the rule, if any, and information concerning the 
     agency's actions relevant to specific procedural rulemaking 
     requirements set forth in various statutes and executive 
     orders governing the regulatory process.
       CRA adopts the definition of rule under the Administrative 
     Procedure Act (APA), which states in relevant part that a 
     rule is ``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.'' CRA excludes three categories of 
     rules from coverage: (1) rules of particular applicability; 
     (2) rules relating to agency management or personnel; and (3) 
     rules of agency organization, procedure, or practice that do 
     not substantially affect the rights or obligations of 
     nonagency parties. CFPB did not send a report on the Bulletin 
     to Congress or the Comptroller General because, as stated in 
     their letter to our Office, in their opinion the Bulletin is 
     not a rule under CRA.


                                ANALYSIS

       At issue here is whether a nonbinding general statement of 
     policy, which provides guidance on how CFPB will exercise its 
     discretionary enforcement powers, is a rule under CRA. CFPB 
     states, and we agree, that the Bulletin ``is a non-binding 
     guidance document'' that ``identifies potential risk areas 
     and provides general suggestions for compliance'' with ECOA 
     and Regulation B. Moreover, the Bulletin is a general 
     statement of policy that offers clarity and guidance on the 
     Bureau's discretionary enforcement approach.
       CFPB argues, however, that because the Bulletin has no 
     legal effect on regulated entities, the CRA does not apply. 
     The Bureau asserts that ``taken as a whole, the CRA can 
     logically apply only to agency documents that have legal 
     effect.'' It suggests that there are two categories of 
     general statements of policy: (1) those that are intended as 
     binding documents, to which CRA applies, and (2) those, like 
     the Bulletin, that are non-binding and not subject to CRA. 
     CFPB claims that the Bulletin is the type of general 
     statement of policy that is not a rule under CRA. However, as 
     explained below, CRA requirements apply to general statements 
     of policy which, by definition, are not legally binding.
       The Supreme Court has described ``general statements of 
     policy'' as ``statements issued

[[Page S7889]]

     by an agency to advise the public prospectively of the manner 
     in which the agency proposes to exercise a discretionary 
     power.'' In other words, as stated by the D.C. Circuit Court 
     of Appeals in Pacific Gas & Electric Company v. Federal Power 
     Commission, a statement of policy announces the agency's 
     tentative intentions for the future:

       ``A general statement of policy . . . does not establish a 
     `binding norm.' It is not finally determinative of the issues 
     or rights to which it is addressed The agency cannot apply or 
     rely upon a general statement of policy as law because a 
     general statement of policy only announces what the agency 
     seeks to establish as policy.''

       The Bulletin provides information on the manner in which 
     CFPB plans to exercise its discretionary enforcement power. 
     It expresses the agency's views that certain indirect auto 
     lending activities may trigger liability under ECOA. For 
     example, it states that an indirect auto lender's own markup 
     and compensation policies may trigger liability under ECOA if 
     they result in credit pricing disparities on a prohibited 
     basis, such as race or national origin. It also informs 
     indirect auto lenders that they may be liable under ECOA if a 
     dealer's practices result in unexplained pricing disparities 
     on prohibited bases where the lender may have known or had 
     reasonable notice of a dealer's discriminatory conduct. In 
     sum, the Bulletin advises the public prospectively of the 
     manner in which the CFPB proposes to exercise its 
     discretionary enforcement power and fits squarely within the 
     Supreme Court's definition of a statement of policy.
       Moreover, as the Pacific Gas & Electric Company decision 
     quoted above makes plain, general statements of policy by 
     definition are not legally binding, and our prior decisions 
     have held that non-binding general statements of policy are 
     rules under CRA. For example, we recently decided that 
     Interagency Guidance on Leveraged Lending, issued jointly by 
     the Office of the Comptroller of the Currency, the Board of 
     Governors of the Federal Reserve System, and the Federal 
     Deposit Insurance Corporation (referred to collectively as 
     the Agencies), was a rule under CRA (Interagency Guidance 
     decision). We found that the Interagency Guidance was a 
     general statement of policy describing the Agencies' 
     expectations for the sound risk management of leveraged 
     lending activities. It explained the types of financial 
     transactions that concern the Agencies and that might 
     motivate them to initiate a supervisory review. The Bulletin 
     similarly states CFPB's concerns that indirect lenders' 
     markup and dealer compensation policies may result in 
     discriminatory lending practices, and sets forth its 
     expectations that indirect auto lenders take steps to ensure 
     that these policies do not result in pricing disparities on 
     prohibited bases.
       We reached our conclusion in the Interagency Guidance 
     decision, and in other prior GAO decisions, by examining 
     CRA's definition of a ``rule,'' which includes ``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.'' This definition has 
     three key components: (1) an agency statement, (2) of future 
     effect, and (3) designed to implement, interpret, or 
     prescribe law or policy. We noted that this definition is 
     broad, and includes both rules requiring notice and comment 
     rulemaking and those that do not, such as general statements 
     of policy. We decided that the Interagency Guidance fell 
     squarely within CRA as an agency action that constituted a 
     ``statement of general . . . applicability and future effect 
     designed to implement, interpret or prescribe . . . policy.'' 
     Similarly, the CFPB Bulletin at issue here is a statement of 
     general applicability, since it applies to all indirect auto 
     lenders; it has future effect; and it is designed to 
     prescribe the Bureau's policy in enforcing fair lending laws.
       Additionally, in a decision issued in 2001, we decided that 
     a ``record of decision'' (ROD) issued by the Fish and 
     Wildlife Service in connection with a federal irrigation 
     project was a rule under CRA. We found that the ROD was a 
     general statement of policy regarding water flow and 
     ecosystems issues in both the Trinity and Sacramento Rivers 
     whose essential purpose was to set policy for the future. In 
     deciding that a general statement of policy is a rule for CRA 
     purposes, this and other prior decisions cite to the 
     legislative history of CRA, which confirms that rules subject 
     to CRA requirements include general statements of policy.
       CFPB did not raise any claims that the Bulletin would not 
     be a rule under CRA pursuant to any of the three exceptions, 
     and we can readily conclude that the Bulletin does not fall 
     within any of the those exceptions. The Bulletin is of 
     general and not particular applicability, does not relate to 
     agency management or personnel, and is not a rule of agency 
     organization, procedure or practice.


                               CONCLUSION

       The Bulletin is a general statement of policy designed to 
     assist indirect auto lenders to ensure that they are 
     operating in compliance with ECOA and Regulation B, as 
     applied to dealer markup and compensation policies. As such, 
     it is a rule subject to the requirements of CRA.
       If you have any questions about this opinion, please 
     contact Robert J. Cramer, Managing Associate General Counsel.
           Sincerely yours,
                                              Thomas H. Armstrong,
     General Counsel.

                          ____________________