Pass financial reform that includes oversight of auto dealers

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We support reforms to the financial marketplace that protect consumers from unscrupulous banks and lenders.

By Consumers Union on Tuesday, June 15th, 2010

Recently, Consumers Union took out an ad in the print version of Politico sending this clear message to Congress:

“An auto dealer loophole in financial reform legislation puts consumers at risk. It would give special treatment to loans offered by dealers, exempting them from the scrutiny of the newly created Consumer Financial Protection Bureau. As the nonprofit publisher of Consumer Reports, we know how important it is to keep consumers informed and protected. So let’s fix this legislation before more consumers get run over by unscrupulous lenders.”

Click here to get a pdf of the ad

Americans for Financial Reform posted a great fact sheet to arm you in calling your Representative telling them to send a clear message to Barney Frank: Pass Financial Reform That Includes Oversight Of Auto Dealers!

The auto dealers say: “Including auto dealers in the Wall Street reform bill is redundant.  The Federal Trade Commission, the Federal Reserve and state consumer protection agencies already effectively govern dealer-assisted financing and that would not change.”

Get the facts: Under S. 3217, the CFPA will be given the authority to identify unfair and predatory lending trends nationwide.  In the event that the CFPA acts to protect consumers, only the largest auto dealers would come under its jurisdiction.   Smaller auto lenders and dealers would be required to comply with consumer protection regulations issued by the CFPA, but the FTC would continue to function as their regulator.  The rule-writing power that the Federal Reserve currently has would simply be transferred to the CFPA.  This would eliminate unnecessary overlap in regulatory efforts while consolidating like functions into one agency.

The auto dealers say: We “are highly concerned that the [CFPA], as currently proposed in the Senate’s Wall Street reform package, would adversely affect a customer’s ability to buy a car or truck.  Over-regulation and additional fees would limit credit options, raise interest rates, and hurt the 17,000 small neighborhood businesses selling cars and trucks – and the hometown jobs they provide.”

Get the facts: The CFPA will already have authority to address auto lending by auto finance companies, banks, and credit unions.  Giving it authority to address abuses in auto dealer lending will protect consumers from hidden surcharges and give them better information so they can choose the lending option that is best for them.  As described above, very few―if any―auto dealers will be regulated by the CFPA directly.  Therefore, smaller auto dealers are unlikely to experience new regulatory burdens that would influence the price of credit.

In fact, rather than limit credit options, the CFPA will level the playing field by reining in the hidden fees and abusive tactics that currently result in families being overcharged.  Banks, credit unions, and nonprofit lenders with low-cost car loans often lose customers to the high pressure sales tactics employed by dealers with a profit motive to push customers into accepting increased car payments, extended warranties, or add-ons, which have been shown to cost customers $1.1 billion every year.  Moreover, research and court cases have uncovered troubling patterns of discriminatory markups in auto dealer pricing.

What we say: To be successful, the CFPA must be created with the authority to regulate all consumer transactions.  Exemptions will only create loopholes for unethical players to hide from laws that aim to protect hardworking families.  S. 3217 seeks to create consumer protection for the future, not to address the problems of the past.  We should not create a hole in the CFPA’s authority over consumer lending or wait for auto financing to rise to the level of the mortgage crisis before we give an agency jurisdiction to stop abuses when they occur.  Auto lending is a $350 billion dollar business, second only to mortgage lending in size, but subject to much less oversight and accountability.  In the wake of the worst economic recession in generations, millions of families are struggling to keep pace with their credit card, car loan, and mortgage payments.  Now is the right time to lay the groundwork for a strong financial system that will help families save and build wealth rather than line the pockets of predatory lenders.


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