By on March 23, 2010

Remember when we reported that the cash cow known as in-house dealer finance wouldn’t be covered by the Consumer Financial Protection Act, currently making its way through congressional committees? That version of the bill passed the House Financial Services Committee (with some questionable support), but now Automotive News [sub] reports that the Senate Banking Committee has passed its own version which does make dealer finance subject to regulation by the Consumer Financial Protection Bureau. The Senate version would also make the CFPB an office of the Federal Reserve, rather than a stand-alone agency. So, should an agency set up to prevent another financial crisis extend regulation to dealer finance operations? Dealers aren’t happy about the idea, but traditional consumer advocates aren’t the only ones saying yes…

Undersecretary of defense for personnel and readiness Clifford Stanley is one of the most surprising advocates for tough consumer protection oversight, even going as far as to single out auto sales as a trouble area. In a letter to the Treasury [via ABC News] he wrote:

The Department of Defense would welcome and encourage CFPA protections provided to service members and their families with regard to unscrupulous automobile sales and financing practices, provided such protections would not limit access to legitimate products… there are still documented cases of service members falling victim to predatory practices and prohibitively expensive products… We believe the intervention of the CFPA in overseeing auto financing and sales for service members will help protect them and will assist us in reducing the concerns they have over their financial well-being

Dealers weren’t the cause of the mortgage meltdown. In fact, dealers still have problems with access to credit and are as much a victim of what happened as the average consumer
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7 Comments on “Pentagon Backs Dealer Finance Regulation,...”


  • avatar
    stationwagon

    Absolutely there should be more regulation on dealer-financing. I just don’t understand how congress constantly is passing bills that half-regulate. for instance last year congress passed a bill banning flavored cigarettes. guess which flavor was exempt? yup, menthol. All that bill did was eliminate an Indonesian tobacco company from the U.S, to the benefit of the U.S tobacco companies. anyways back to the point, dealer-financing is the most deceitful way of financing that affects the largest number of people. I hope other motor dealers get the same regulations, if necessary. I don’t have any knowledge of whether RV, boat and motorcycle dealers do the same tricks as car dealers.

  • avatar
    CyCarConsulting

    Not so. APR is based on your ability to pay bills on time, not the dealers. 3 points is the max mark up for a dealer, on money regulated by the financial institutions for years now. Extended warranties are extra, service packages are extra, etc.,etc. and most inventory front end profit is less than 8% to 0. Not many businesses could survive on that kind of return. Predatory lending, not likely, especially when the auto business is the most over regulated business there is. It’s easy to pass judgement from the outside, with little to no knowledge, just theories.

  • avatar
    Quentin

    I don’t think the predatory practices of dealers have anything to do w/ APR. It is all about rolling what is owed on one car into a new monthly payment and stretching loan terms out to 6 and 7 years. I see it all the time, on forums I frequent, where someone w/ a 3 year old car wants to trade up. The dealer will work out a deal to where they can get the newer, shinier car for $50 more/month but the term has been dragged out another 6 years. They basically give their car away for what they owe on it and sign up for another $4k in interest. It isn’t the APR. It is where the smarter financing manager understands how he can make a freaking boatload off someone that simply doesn’t understand the math.

    I’m a dealers worst nightmare because I show up to the dealership w/ a laptop and excel sheets where I can plug in numbers to show the TOTAL cost after all the interest, taxes, title, reg, etc. If I’m not willing to pay that final number for a vehicle, I walk.

  • avatar
    educatordan

    I get pre-approved from my credit union and don’t do dealer finance.

    Around here we have a few dealers, (major brand franchisees) who do the get your insurance from us too and make one monthly payment. I once was in line behind an elderly woman from our most prevalent minority group (Native American) she was checking her account balance cause her truck payment was coming up. It was $750 per month! When I got outside shortly after her it was on a base model full size 4×4, not a Denali. Native friends of mine have told me about walking into dealerships where they won’t tell them the final price on the car, they just want to talk about the monthly payment. Those friends have rightly walked out and I refuse to do business with those dealerships.

  • avatar
    Rick Korallus

    CyCarConsulting +1. When we inform/educate people about the hole they are digging for themselves and they continue to beg for extended terms beyond 60 months because they “gotta have it”, are we supposed to turn them away so our competitors can sell them what they want? Those same people with the 3 year old trade in can’t be bothered with leasing either because “they own their cars”. Mmm, yeah right! 3% mark up on finance is extremely difficult to obtain anymore with all the special rates and competition from credit unions out there. Based on a Reader’s Digest article that came out a long time ago, I tell people all the time, it’s cheaper to keep and maintain a car for 10 years than it is to trade every 3, 4 or even 5 years. The RD article pointed out that after 30 years, based on then average car prices and interest rates, people are squandering a quarter million dollars on interest and that included mechanical break downs too. How come no one is complaining how much the banks make on those extended loans? Why are the banks allowed to even offer them? It’s no different than making A.R.M.s available to people who had no business getting them in the first place. And if the government is so interested in our financial well being, why does one have to wait until they’re 21 to start contributing to a 401k? Why are we limited from putting away as much money towards retirement as we possibly can?

  • avatar
    asapuntz

    > How often do you see the Pentagon falling into step with folks like Consumers for …

    Pretty sure that there are payday loan restrictions when dealing with service personnel. In general, there is at least some attempt to protect military personnel from “debt traps”. In part because we don’t want them beholden to external influence, but also because their duties can make it difficult for them to make payments, etc.


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