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CFPA, a new consumer protection agency, may snare dealers

November 15, 2010

Congress is working to overhaul the nation’s financial regulatory system in light of the collapse of major banks last year, and a proposed federal watchdog agency might scrutinize the nation’s 19,000 new-vehicle dealers.

The House Financial Services Committee was scheduled to vote Oct. 14—after this newsletter’s deadline—on creating a new Consumer Financial Protection Agency (CFPA). The bill, House Resolution 3126, would subject auto dealers to numerous new and, in some cases, duplicative regulations.

Dealer groups insist that financial reform should focus on what led to an economic crash last year. Auto dealers were victims, not a cause, of the credit meltdown.

They also contend that effective federal and state laws governing dealer-assisted financing already exist, and that more can be accomplished by enforcing existing laws rather than creating a massive new agency.

In light of the current credit crisis and the lowest auto sales in a generation, the National Automobile Dealers Association argues that a dramatic restructuring of auto finance would create unintended consequences, increasing consumer costs that could further depress auto sales.

Congressman Barney Frank (D-Mass.), chairman of the House Financial Services Committee, said in September that he would exclude auto dealers from being regulated by the provisions of the proposed CFPA.

But a consumer coalition of about 30 groups, including the Consumer Federation of America, Consumers Union, National Council of La Raza and Public Citizen, thinks otherwise.

"We strongly urge you to ensure that all activities of auto dealers related to the financing of cars are fully included under the jurisdiction of the (proposed) CFPA," the groups said in an Oct. 12 letter to Frank and to Rep. Spencer Bachus (R-Ala.), the House committee’s ranking minority member.

Frank’s discussion draft bill last month exempted dealers from some new regulations—if buyers got their own financing or paid cash. According to the NADA, 94 percent of all new-vehicle purchases involve financing.

The White House proposed regulating all dealer transactions. Frank’s exemption is too narrowly drawn, the NADA charges, because it still would subject financing to regulation. Auto lending already is regulated by all 50 states, the Federal Reserve Board and the FTC.

The NADA also takes issue with the consumer groups, saying auto-related complaints represented just 1 percent of all FTC complaints last year.

Bailey Wood, an NADA spokesman, said offenses like payment packing, misrepresenting fees, falsifying loan applications, forgery "are already illegal."

But he said dealers invest a lot of effort in providing financing for their customers. "It is only fair for them to be able to cover their costs and (realize) some profit from their efforts."