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Atty. general Madigan attacks dealer-arranged financing

November 22, 2010
Through heavy lobbying, the state's dealers stalled identical House and Senate bills coined in February by Illinois Attorney General Lisa Madigan to require dealers to disclose any compensation they get when they secure financing for their customers. Senate Bill 3148 and House Bill 4900 moved among committees but never have been voted upon. The proposals would force dealers to disclose the percentage interest rate at which they can secure a loan for any customer and how much profit the dealer makes on the loan. Many dealers contacted legislators to protest the bills' motives. No other industry must disclose such information. Federal regulations require that consumers be told the annual percentage rate on a loan but do not cover dealer markups. In Illinois, loan interest rates are readily negotiable with customers, unless a fixed term is advertised. Also, dealers and their finance sources can secure loans that customers with poor credit scores rarely could obtain themselves, because of the loan volume engaged in by the dealers and their sources. Further, many dealers share a significant finan cial obligation when they secure financing for some customers. The National Automobile Dealers Association in February joined two other trade associations that represent auto finance companies and financial institutions in calling for voluntary disclosure to consumers that the APR is negotiable. The groups also support disclosing that the dealership may receive part of the finance charge or other compensation for securing the financing. "Our goal," said NADA Chairman Charley Smith, "is to continue to build consumer trust. And to do so, we must, as an industry, recognize the need for greater transparency in dealer-assisted financing." Peter Sander, president of the Illinois Automobile Dealers Association, said the dealer-financing legislation is a hot topic on talk radio in Springfield. So far, Madigan's original proposal has not gained momentum in the General Assembly. It also is opposed by lobbyists for the state's banking industry. Officers of the CATA and the IADA said Thursday that if the attorney general would negotiate her stance, they would be willing to seek a common ground. Dealers are an influential lobby in the state capital. They reportedly generated 13 percent of the $9.4 billion sales tax revenue in Illinois last year.