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Dealer-assisted financing targeted by consumer protection agency?

March 15, 2013
By Mark Scarpelli, Chicago Metro NADA Director
Several media outlets have reported that the Consumer Financial Protection Bureau is considering enforcement action against several large commercial banks for compensating dealers in a manner that allegedly may have resulted in violations of the Equal Credit Opportunity Act. The law was enacted in 1974 to bar discrimination in lending. The actions focus on whether consumers from certain demographic groups pay more dealer participation than similarly situated consumers from other demographic groups. 
The rumored allegations do not involve intentional discrimination in auto finance, but instead are based on unintentional and unproven conduct under the disputed “disparate impact” theory of liability. This theory is based on an after-the-fact statistical analysis of whether one group paid more for credit than another group.
It is essential that this analysis be conducted in a statistically reliable manner. Otherwise, it can produce flawed findings that could serve as a springboard for disrupting the “optional” dealer-assisted financing system, which has served consumers at all credit tiers extremely well.
Dealers provide a valuable service that increases access to and reduces the cost of financing to car buyers. A dealership’s ability to discount the interest rate it offers to consumers — which is made possible by the customer’s ability to negotiate rates at the dealership — would be eliminated if CFPB action leads to an arbitrary flat fee compensation system.
Removing the dealer’s ability to “meet-or-beat” the best interest rate available to a customer from competing finance sources would significantly weaken rate competition and result in more expensive financing for consumers.
The NADA is committed to ensuring that all categories of consumers are protected and treated fairly. As the NADA demonstrated during the Federal Trade Commission roundtable sessions last year, dealer-assisted financing provides overwhelming consumer benefits in the marketplace today, including access to affordable credit for millions of Americans who do not have traditional relationships with banks.
In other NADA news ...
• A bipartisan bill introduced in Congress seeks to repeal obsolete paperwork required at auto dealerships.
House Resolution 724 would eliminate a mandate that requires dealers to certify if a new vehicle has an emissions system. Under the Clean Air Act, dealers are required to present written confirmation to the buyer that a visual inspection has been completed of a new vehicle’s emissions system.
The bill, introduced by Reps. Bob Latta (R-Ohio) and Gary Peters (D-Mich.), eliminates the obsolete and unnecessary requirement. “There are already enough documents for car and truck buyers to read at the sale of a new vehicle. Eliminating this redundant form makes sense,” said NADA Chairman David Westcott.
Industry and regulatory issues top the list of dealer concerns.
Despite the industry and regulatory challenges of the moment and an uncertain future, Chairman Westcott said he remains confident about the future of auto retailing. He said one of the biggest challenges facing dealers is their relationship with manufacturers. “The issues posed by stair-step incentive programs and by mandatory facility upgrades are just two of the most recent examples of manufacturers intruding into dealers’ businesses,” Westcott said in remarks at the NADA Convention and Expo last month.
Westcott, a Buick, GMC and Suzuki dealer in Burlington, N.C., said the development of stair-step incentives are an understandable response to the need for higher sales by the manufacturer, but he said many stair-step incentive programs “raise fundamental questions of fairness.”
• The NADA has launched a new Energy Ally Program to help dealerships reduce energy use.
The NADA and the Environmental Protection Agency have partnered to help new-car dealers reduce their energy consumption through the Energy Star program. As part of this effort, the agencies are encouraging dealerships to complete a brief survey that will give the EPA a benchmark to better compare the energy usage of dealerships across the country and allow certification of those dealerships which perform well. Dealers who participate in the survey and reduce their power usage will be recognized by Energy Star for their efforts to reduce the dealership’s impact on the environment.
In other news ...
• The Federal Trade Commission is warning small businesses not to open email falsely claiming to be from the FTC.

The message that pretends to be from the FTC contains “NOTIFICATION OF CONSUMER COMPLAINT” in the subject line. The email falsely states that a complaint has been filed against the recipient’s company and contains a link to consumer complaints, a link to contact the FTC and an FTC telephone number.
Clicking on any links or opening an attachment might install a virus or other spyware.