The House/Senate conference committee on financial reform is debating the structure and authority of a consumer financial protection bureau. The issue just decided: Should the new Bureau regulate lending arranged by auto dealers? The House offer would exempt auto dealers. The original Senate bill would not.
The loophole would mean car dealers who offer or arrange car financing would operate under different rules than banks and credit unions who make the same auto loans. This uneven playing field would give auto dealers an unfair advantage over banks and credit unions. Auto sales and service complaints, typically related to predatory lending practices at dealerships, rank number 1 among consumer complaints lodged with state and local consumer protection agencies. As just one example, the auto dealer exemption would not protect communities of color and women who are disproportionately steered into high interest loans by finance departments who get higher compensation when they generate higher cost loans.
Auto financial scams harm families inside and outside of the military, and impede U.S. troop readiness, which is why the Pentagon has weighed in directly to prevent loan scams from affecting our troops. The Defense Department reports that 72 percent of surveyed military financial counselors across the country said they have counseled troops with these problems in the last six months.
An amendment offered by Rep. Gutierrez (D-IL) would have compromised on the issue – retaining primary jurisdiction to regulate auto lending at the FTC, but giving the CFPB backup enforcement authority. Three Democrats – Reps Kilroy, Moore and Peters – joined all Republicans to reject even that mild compromise.
As the Center for American Progress reports, "Since 2007, trade groups for auto dealers spent
$12 million lobbying. Auto dealers, their employees, and political
action committees donated
$9.3 million to candidates during the 2008 election cycle."
It’s now up to Senate negotiators to stand up to the auto dealer lobby and reject this huge loophole.