Throughout the debate on Wall Street reform, I have urged members of the Senate to fight the efforts of special interests and their lobbyists to weaken consumer protections. An amendment that the Senate will soon consider would do exactly that, undermining strong consumer protections with a special loophole for auto dealer-lenders. This amendment 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. This amendment guts provisions that empower consumers with clear information that allows them to make the financial decisions that work best for them and simply encourages misleading sales tactics that hurt American consumers. Unfortunately, countless families – particularly military families – have been the target of these deceptive practices.
This is what president Obama said just six weeks ago about efforts to exclude car dealership financing from consumer protection measures included in the forthcoming Financial Reform bill. With that bill moving towards Obama’s desk, all that stands in the way of its passage are angry dealers who don’t want to be subject to oversight. And despite the tough talk about standing up to financial interests to pass this reform, it seems Obama has caved to America’s auto dealers.
Today, the White House released a statement, reported by Automotive News [sub] that said
The president vowed to fight efforts to weaken this bill and find ways to strengthen it, which is why he opposes carve-outs like this one that would exempt auto-dealer lenders from new consumer protections. While we knew that we’d not win every fight, the president will soon sign into law historic Wall Street reform that includes the strongest consumer protections ever
So, why did Obama speak out against dealer finance’s exemption from oversight if he was willing to cave on it? That, so far, is a mystery. And though the bill does cover a number of important issues outside of the car industry, this is definitely the wrong message to be sending. With GM already looking to subprime loans for sales growth, the temptation to goose sales with ever-riskier and more-exploitative loans, whether on the dealer or OEM level, is undeniable. Sales have been flat since mid-2009, and in the established order of business for the car industry, financial trickery is the first resort of a struggling firm. And if the last two years have taught us anything, it’s that redlining sales with creative lending creates unsustainable growth. If Obama figures less regulation at the dealer level will boost overall sales, helping GM go private and him get re-elected, he’d better consider the possibility of another car sales crash in his second term. And in the meantime, anyone who gets screwed by an unscrupulous dealer will have their president to thank.