Americans for Financial Reform and our partners sent this letter (PDF) to Senators Dodd and Shelby this week regarding the need to treat auto dealers the same as other lenders under the CFPA:
On behalf of our organizations we commend the Chairman’s introduction of a strong pro-consumer legislation that creates the Consumer Financial Protection Agency (CFPA). We applaud the decision to treat auto dealers who broker, originate, or otherwise affect the financing of auto loans the same as other parties within the legislation creating the CFPA. We believe such a decision not only protects the American consumer, but also ensures that sound auto financing is provided by credit unions and community banks rather than the large Wall Street banks who led us into the current financial crisis.
As the CFPA legislation moves forward, we strongly urge you to ensure that all activities of auto dealers related to the financing of cars remain under the jurisdiction of the CFPA. While we agree that the sale of just a car, where car buyers pay cash or obtain their own financing, should not (and does not) fall under the supervision of the agency, dealers are often “selling” the financing too. Currently a majority of dealer profits are derived not from the sale of the car itself, but rather from their “Finance and Insurance” departments. Consequently, much like the mortgage industry, financing practices have become more and more predatory and abusive in nature.
Auto sales and service complaints, typically related to predatory lending practices at dealerships, rank #1 among consumer complaints lodged with state and local consumer protection agencies. Since motor vehicles are the second-largest purchase most consumers make, and the average price of a new car is now more than $28,000, relatively few car buyers can afford to pay cash, leaving most consumers vulnerable to predatory auto lending. Young people purchasing their first cars, racial and ethnic minorities, and members of the Armed Forces are particularly vulnerable.
(Photo: Elmo Alves)