The National Association of Consumer Advocates (NACA) explains why auto dealers must be covered by the Consumer Financial Protection Agency (CFPA).

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While the vehicles themselves have never been better, predatory auto sales and financing practices have never been worse. Today, a majority of auto dealer profits are derived not from the sale of the car itself, but rather from the financing and add-ons in car sale transactions.i Consequently, dealers engage in predatory practices to steer unsuspecting Americans into overpriced unsustainable auto financing deals. Congress must act to protect consumers by allowing the Consumer Financial Protection Agency (CFPA) to oversee auto dealer practices.

• The #1 consumer complaint lodged with state and local consumer protection agencies has been auto sales and service complaints, typically relating to auto dealerships’ predatory lending practices.
• The purchase of a car is the second largest purchase most Americans make. Because the average price of a new car today is over $28,000, most Americans need financing.
• Dealers are generally the original lenders, but almost immediately sell the note to auto finance companies. Auto financing companies in turn give auto dealers kickbacks for steering consumers into loans with higher interest rates and overpriced add-ons.
• Auto dealers often engage in falsification of loan applications, forgery, and bait-and switch financing, known as “yo-yo” financing. It is estimated that yo-yo financing impacts 1 in 8 borrowers with incomes below $40,000, and 1 in 4 borrowers with incomes below $25,000. Victims of yo-yo financing end up paying an average of 5% higher interest.
• Predatory financing of auto loans has led to a vicious cycle of negative equity. “Fully 85 percent of Americans with a car loan have negative equity. These loan holders, on average, owe $4,400 more than their cars are worth.”
• As record numbers of auto dealers go out of business, many fail to pay off liens on traded-in vehicles. This results in defaults, repossessions, and trashed credit, and costs some car buyers their jobs. Some states have established restitution funds in an attempt to reimburse the victims; however, the funds are inadequate to cover the losses.
• Rampant and unchecked auto lending abuses have led to record numbers of auto repossessions, destroying consumers’ credit and impeding our nation’s economic recovery.
• Auto lending has repeatedly been proven to be discriminatory, with a disparate impact on African American and Hispanic car buyers. Dealers are also notorious for preying on military troops and their families, making car buying a leading source of financial readiness problems for our nation’s Armed Services.

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