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White House fights exemption for dealer-assisted financing in new consumer agency; dealers urged to contact senators for their support

November 10, 2010

With the Senate expected this month to consider legislation to reform the nation’s financial system, President Obama has indicated he wants to overturn a provision in the House-passed bill that excludes auto dealers from a newly proposed consumer financial protection agency.

The Senate is to debate legislation creating a Bureau of Consumer Financial Protection. The agency would have sweeping powers to fundamentally alter or even potentially regulate out of existence auto financing at dealerships.

The new bureau also would have the authority to reduce or eliminate dealer compensation for arranging a loan or lease, and even could  limit a salesperson’s commission connected to a sale if the vehicle is financed.

Sen. Sam Brownback (R-Kan.) said April 14 that he would offer an amendment to exclude auto retailers from the bureau’s jurisdiction. But the amendment faces a steep uphill battle as consumer groups and the Obama administration have come out in full-force against the idea of exempting auto dealers from the jurisdiction of the new bureau.

Treasury Department Deputy Secretary Neal Wolin made it clear during a briefing with reporters last week that the White House would not accept a bill that exempts dealers. He said "a carve-out for auto dealers would be a paradigmatic example" of a move weakening the bill.

The National Automobile Dealers Association and the American International Automobile Dealers Association lobbied heavily in the House and were successful in exempting dealers from the financial bill that passed in December.

The dealer groups are rallying all dealers to contact their senators in support of the Brownback amendment, including Illinois Sens. Dick Durbin and Roland Burris, and Indiana Sens. Evan Bayh and Richard Lugar.

"Brownback is looking to introduce language similar to what passed in the House so that the vast majority of transactions at auto dealerships aren’t subject to additional banking regulations," said Brian Hart, a spokesman for Brownback. "Auto dealers are retailers, not banks, and are already subject to a host of federal and state regulations that protect consumers."

The NADA distributed an e-mail last week to members supporting the amendment.

David Regan, the NADA’s vice president of legislative affairs, said: "Auto dealers did not cause the credit meltdown, and auto loans did not contribute to the worst financial crisis since the Great Depression.

"Financial reform legislation should focus on what led to the economic crash in 2008, and not be used as a means to increase regulation on dealers."

The administration’s point: Auto loans can be deceptive and abusive and should be policed. The industry’s point: We didn’t cause the financial crisis. Don’t blame us.

"Dealer efforts to educate the Senate on this important issue are critical," said Regan. "Banks and finance companies that underwrite and service auto loans would be covered by the new Bureau of Consumer Financial Protection, making further regulation of auto dealers costly and unnecessary."

Auto loans already are "policed" by the Federal Trade Commission and state consumer protection agencies, and would remain fully regulated under the Brownback amendment. The proposed Bureau of Consumer Financial Protection would have near dictatorial powers over auto finance, including the power to end third-party financing and to subject dealers to intrusive examinations without cause.

"Increasing regulation of dealers while failing to articulate any reason why such a change is necessary is an example of the Administration exploiting the 2008 Wall Street crisis to increase government control over Main Street businesses," said Bailey Wood, an NADA legislative spokeswoman.

The legislation is part of overall financial regulation, in a process in which hopes are fading for a bipartisan deal in the Senate to advance the matter. To avoid a filibuster, Democrats need the support of at least one Republican.

Obama said he won’t accept a weakened bill simply to pass something.