UPDATE 1-U.S. Senate favors undoing consumer bureau's auto guidance

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WASHINGTON, April 18 (Reuters) - The U.S. Senate voted 51-47 on Wednesday in favor undoing the Consumer Financial Protection Bureau's 2013 guidance restricting how car dealers extend auto loans to consumers, in the latest move to weaken the agency.

The vote to overturn the consumer watchdog's indirect auto-lending rule, was debated on the Senate floor on Tuesday for 10 hours. It must be debated and approved in the House of Representatives before being sent to President Donald Trump for his signature.

Tabled by Republican Senators Jerry Moran and Pat Toomey, the vote comes amid a broader attack of the consumer watchdog by the Trump administration for issuing guidances that potentially restrict banks' reach to consumers.

An ill-advised Obama-era auto-lending rule issued by the CFPB missed the mark on both process and substance, said Moran of the guidance by the CFPB, an agency conceived under President Barack Obama to stamp out predatory lending.

"This resolution of disapproval provides Congress the opportunity to reverse this overreaching rule to return a sense of stability to the auto marketplace," he said.

Drivers who use indirect auto loans are financed through a dealership. Those dealers are backed by banks.

In 2013, the CFPB implemented a guidance that limited the markup and compensation rates for dealers on auto loans - specifically on the basis of race, national origin or credit score.

"The CFPB developed a badly flawed methodology to allege discrimination on the part of lenders on the basis of race, despite the fact that the lenders didn't know the race of the borrowers," Toomey said in a statement.

At Toomey's request, the Government Accountability Office reviewed the CFPBs guidance and concluded in October 2017 that it actually qualified as a rule, making it eligible to be rolled back by majority vote in Congress.

Wednesday's resolution scrapped the five-year auto-lending rule by allowing car dealers to use their own discretion in interest rates and compensation markups.

Advocacy groups, like the National Automobile Dealers Association, contest the CFBP's guidance on the grounds of its oversight, and supported the decision in the Senate.

Americas franchised auto dealers strongly believe that every customer deserves to be treated fairly," Peter Welch, president of the lobby group, said in a statement.

"There is no room for discrimination of any kind in auto retailing -- period."

The resolution does not introduce a new rule to counter the CFPB's guidance. It merely blocks its enforcement. (Reporting by Katanga Johnson Editing by Bill Trott and Alistair Bell)