Close The Loophole on Car Dealers – Take Action Before Tuesday
By Consumers Union on Friday, June 18th, 2010
Chairman Barney Frank has scheduled discussion on the consumer protections for the week of June 21-25. We have heard that the House conference committee will be discussing giving a giant loophole for auto dealers on Tuesday. Call your representative now and tell them to weigh in on consumer protection to their colleagues on the conference committee.
Or take quick action online. The message is simple: No Special Treatment For Auto Dealers!
The auto dealer lobby successfully fought to receive a special exemption in the House from the
rules of the Consumer Financial Protection Bureau (CFPB) in the financial reform bill even when
the dealers act as creditors and brokers on car loans. But fair, honest and ethical competition
requires a level playing field, as well as a fair and consistent system for accountability.
There is widespread agreement that there should be no carve-out for auto dealers. In addition to
consumer and civil rights groups, the Department of Defense, the Military Coalition, the Credit
Union National Association, and the Independent Community Bankers Association all oppose
any amendment to the base text to give the auto dealers a free ride from CFPB’s consumer
The base text for the conference does not include any auto dealer loophole, but we expect there
will be an effort to add such language during the conference. We urge conferees to oppose any
effort to grant auto dealers a special exemption from CFPB for many reasons, including:
Auto dealers are lenders. When a family gets a car and financing for the car from an auto
dealer, the dealer acts as a lender or broker (or, more commonly, both). The dealer “sells” the
financing, and negotiates the price, term and structure of the loan, even where the dealer sells
the loan contract to a finance company after it strikes the loan deal with the customer.
Like mortgage brokers, auto dealers frequently add interest rate mark-ups to put car
buyers in higher priced loans than the buyers qualify for to increase their own
compensation. These mark-ups cost consumers as much as $20 Billion each year.1
Dealer mark-ups have discriminated against minorities. An analysis of the patterns of
these mark-ups from litigation demonstrates that dealers are more likely to use their
discretion to mark up interest rates for African Americans than for Caucasians, and to impose
higher mark-ups for African Americans than for those Caucasian buyers who do get markups.
This discrimination was found in every state from which data was available during
Exempting auto dealers would be particularly harmful to vulnerable consumers,
including members of the military and their families. Abusive car loans made by auto
dealers have drained billions of dollars from consumers, disproportionately affecting women,
people of color and the military and their families. In February 2010, the Defense
Department sent a letter to the Treasury Department noting that the CFPB is a much-needed
tool to bring an end to common abuses in the auto industry, including bait-and-switch
financing, the falsification of loan applications, loan discrimination, and the failure to repay
liens on trade-in vehicles.
Abusive financial practices by auto dealers are the number one source of complaints received
by the Better Business Bureau and state and local agencies. It does not make sense to limit
Including all auto lenders will benefit, not burden, responsible car dealers. Financial
reform does not call for any taxes or fees on auto dealers, and the vast majority of auto
dealers will not be subject to oversight. Responsible auto dealers should welcome a new tool
to weed out those who engage in unscrupulous practices.