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Vote on Brownback amendment delayed till May 18 at earliest

November 10, 2010
Financial regulation overhaul

In the battle to overhaul the nation’s financial regulations, local car dealers find themselves pitted against not just President Obama but also the world’s most powerful military force.

A vote was expected May 13 on an amendment to exempt most auto lending from new government oversight was rejected by the Senate. But the amendment’s author, Sam Brownback (R-Kan.), said he withheld the matter while wrangling for more support.

"We decided not to run it today because we felt it would be too close for us," Brownback said. "We needed more time to work the amendment" and secure 60 votes to pass it.

The Senate is not expected to hold votes May 17 because of primaries in Arkansas and Pennsylvania, so the next chance would be May 18.

The matter had been the subject of more lobbying than any other aspect of the massive financial-regulation overhaul package pending in the Senate, including an unusual letter from the Pentagon calling for a crackdown on dealers.

In an aggressive foray into the Senate floor debate on May 12, Obama issued a statement in opposition to the Brownback amendment that would have exempted from coming under the purview of a proposed new Consumer Financial Protection Bureau. Ed Tonkin, chairman of the NADA, returned fire by calling much of what Obama said "pure fiction."

In his statement, Obama said the amendment would create a "special loophole for auto dealer-lenders" that "would carve out a special exemption for these lenders that would allow them to inflate rates, insert hidden fees into the fine print of paperwork and include expensive add-ons that catch purchasers by surprise."

And he added, "Unfortunately, countless families — particularly military families — have been the target of these deceptive practices."

Later that day, the Senate voted 98 to 1 to create a "consumer protection liaison" for military service members and their families.

Standing on the front line of the regulation fight was Jan Gaudio, a retired rear admiral, who told tales of soldiers who had been baited by dealers into high-interest loans or extra payments.

The regulatory overhaul bill, which could be finalized this week, calls for a new consumer agency that could write rules to protect borrowers and enforce them across a broad spectrum of loans, including mortgages, credit cards and auto loans.

Tonkin argued that the Brownback amendment did not exempt dealers from oversight. "Any dealer, bank, credit union or other finance company that actually underwrites and funds auto loans would be subject to the proposed consumer protection agency," Tonkin said. "And we’re absolutely fine with that.

"What we don’t support is including auto dealers who simply assist customers to find auto financing. These dealers are not banks. They are facilitators. And dealer-assisted financing is already heavily regulated—and should not be subject to double regulation."

Obama said the Brownback amendment would undermine "strong consumer protections with a special loophole for auto dealer-lenders," and he opposed carve-outs for any industry.

Tonkin countered that, despite what Obama suggested, unfair and deceptive practices currently are illegal and would remain so under the Brownback amendment. "Moreover, all of the laws that dealers now are subject to—the Equal Credit Opportunity Act, the Truth In Lending Act, the Federal Consumer Leasing Act, the Fair Credit Reporting Act, the Gramm Leach Bliley Act, and the  Federal Trade Commission Act—still would exist and apply to dealers if the Brownback Amendment is approved," he said.

In appealing for an exemption from the oversight, dealers said that although they offer financing options to buyers, they largely act as a middleman between lenders and consumers and generally don’t lend their own money. Adding rules, such as requiring them to register or submit to regular examinations by federal officials, would lead to a higher cost of doing business, which could be passed on to consumers or discourage dealers from offering financing options altogether.

Obama argued that exempting auto dealers "would allow them to inflate rates, insert hidden fees into the fine print of paperwork, and include expensive add-ons that catch purchasers by surprise." An exemption, the president said, "guts provisions that empower consumers with clear information that allows them to make the financial decisions that work best for them."

The U.S. House exempted dealers from oversight when it approved a similar measure in December. If the Senate bill passes, the difference would have to be reconciled before legislation is sent to Obama’s desk.