Car Dealers Press Senate to Exempt Auto Loans from Oversight
But the National Automobile Dealers Association says that such oversight is unnecessary. Dealer-assisted finance as currently practiced "is sound ... and decreases the cost of credit to consumers," NADA says. Further, auto dealers are already subject to oversight by the Federal Reserve Board, the Federal Trade Commission and state consumer-protection agencies.
Not surprisingly, NADA is pushing for an amendment, sponsored by Sen. Sam Brownback (R-Kan.), that would exclude auto dealers from oversight by the soon-to-be created Consumer Financial Protection Bureau. Without the provision, the group says, dealer-assisted financing would be severely hampered, limiting both convenience and competition for consumers rich and poor alike. The NADA notes that 94% of all vehicle purchases last year involved some form of financing.
Consumer groups, naturally, oppose the so-called Brownback Amendment, arguing that current auto dealer practices are rife with abuse, and grievances about them lead the lists of complaints filed with local and state consumer agencies by disgruntled customers. Among dealers' allegedly shady practices are bait-and-switch financing; falsification of credit applications; "loan packing" -- deceptive sales of overpriced add-on items; and charging excessive interest rates or dealer markups.
Car Dealers Won First Round in the House
Car financing is one of the most lucrative business lines at most car dealerships, says Consumers Union, the publisher of Consumer Reports magazine. Auto loans are consumer loans; therefore auto dealers should be subject to the same rules as other lenders, says the nonprofit organization, which, along with nearly 30 other groups, has urged lawmakers to subject dealer-sponsored financing to the same restrictions on predatory lending as banks.
Further, Consumers Union says, the nation's current patchwork of laws is ineffectual and doesn't protect the most vulnerable. "[T]here is evidence that minorities and the military are disproportionately targeted for auto loan overcharges." A consumer financial protection agency would provide a more accountable and efficient way to enforce current law restricting auto dealers, it says.
If the debate sounds familiar, it's because Rep. John Campbell (R-Calif.) succeeded in getting an amendment exempting most car dealers in the House version of the bill, which passed in December. That legislation does include language to regulate dealers who provide "buy here, pay here" financing.
The full Senate is expected to vote on the Brownback Amendment on Monday afternoon, and it's unclear whether consumer groups will prevail in their effort to keep oversight of auto dealers in the financial reform legislation. But if they do, chalk one up for the little guy.