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Dealers win exemption from proposed financial regulator

November 11, 2010

When all-night negotiations over financial reform ended at dawn June 25, the nation’s 18,000 new-vehicle dealers got what they wanted: protection from oversight by a new consumer protection regulator.

Instead, House and Senate conferees agreed that the Federal Trade Commission would remain watchdog over dealers, with expedited authority to enact regulation when necessary.

The creation of a consumer protection regulator, with broad authority to write and enforce rules protecting borrowers, is a centerpiece of the financial legislation. Its jurisdiction would include banks, mortgage lenders and other companies whose primary business is making loans to consumers.

The agreement is to be submitted to the full House and Senate for votes this week, and then to President Obama, who has indicated he would sign it.

The two largest groups to gain exemption from the new regulator are dealers and community banks. Their victories are a classic instance of the maxim that politics are local. Banks and dealerships are important businesses in every Congressional district, and both their concerns and donations have been embraced on Capitol Hill.

The new agency, housed in the Federal Reserve, would oversee mortgages, credit cards and other consumer financial products in the wake of the biggest economic meltdown since the Great Depression.

But dealers’ role in arranging loans for new-car customers would not be subject to supervision, enforcement or rule-writing by the so-called Consumer Financial Protection Bureau.

Instead, the agency would oversee the financial institutions that extend credit to auto customers, as well as the few dealers that provide direct financing themselves.

Auto dealers argued that they already were subject to various federal regulations, mostly enforced by the FTC. Dealers would continue to fall under the supervision of the FTC and state authorities.

The conference agreement represents a hard-fought victory for the National Automobile Dealers Association over a powerful coalition that included Obama, the Pentagon, senior Democratic lawmakers, military families, consumer advocates and civil-rights activists.

"The goal all along was to keep a new, untested government agency from creating burdensome and unnecessary rules that would make it harder and more expensive for car buyers to access auto credit," NADA spokesman Bailey Wood said.