Advocates Oppose Car Dealer Carve Out

The industry that has the most complaints to the Better Business Bureau should not be exempted from consumer protection

Consumer Federation of America: “In the fight over Senator Brownback’s (R-KS) amendment exempting auto dealers from the proposed Consumer Financial Protection Agency, representatives of the military have weighed in on the side of the troops – auto dealers should not be exempted. Auto financing-related scams are the leading source of financial readiness problems for active duty personnel and their families.”

Military Coalition, a consortium of nationally prominent military and veterans organizations, representing more than 5.5 million current and former service members: “The most significant financial obligation for the majority of service members is auto financing. Including the auto dealers financing and sales in the financial reform bill will provide greater protections for our services members and their families. Providing a ‘carve-out’ for auto dealers does just the opposite – it will allow unscrupulous dealers to continue to take advantage of service members and their families.”

Michael Calhoun, President, Center for Responsible Lending: “Abusive financial practices by auto dealers are the number one source of complaints received by the Better Business Bureau and state and local agencies. When a family gets a car and financing for the car from an auto dealer, the dealer is acting as a lender (or “creditor”). Whether auto dealers originate or broker the car loan, they are the ones to negotiate the price, term and structure of the financing. If we have a fair and competitive market, consumers can be more confident of a fair deal regardless of the source of their loan.”

Ed Mierzwinski, Consumer Program Director, U.S. PIRG: “Car dealers don’t just sell cars, they sell loans, and often those loans are predatory. Exempting them from bank reform leaves consumers broken-down on the side of the road.”

Hilary Shelton, Director, NAACP: “Recent studies prove what many of us have known anecdotally for years; that widespread racial disparities, unrelated to credit risk, exist in the markups added by auto dealers to auto loan interest rates and fees. Exempting auto dealers from the jurisdiction of the Consumer Financial Protection Bureau would result in consumers losing important protections when making one of the largest and important financial transactions of their lives, and would affect millions of Americans each year.”

Janet Murguía, President and CEO, National Council of La Raza: “For many Latino families, just like that first home, buying a car is a major life purchase that establishes credit history and helps families access better jobs. At a time when millions of Americans are struggling to make ends meet, the Senate should be thinking more about how to put families back on the path to financial security.”

Shanna Smith, President and CEO, National Fair Housing Alliance: “Just like mortgage lenders who got rich by steering people of color into high-cost and predatory home loans, too many car dealers are lining their pockets with the discriminatory kickbacks they take when they mislead African American and Latino car buyers. Individual financial duress may be more difficult to see than blocks of foreclosed homes, but that does not make it any less real.”

Nancy Zirkin, Executive Vice President of the Leadership Conference on Civil and Human Rights: “The Leadership Conference urges members of the Senate to oppose any amendments that create loopholes for auto dealers. Dealers routinely act as lenders and brokers with the discretion to set the terms of credit. Too often this has resulted in African American and Latino borrowers being charged higher markups than their White peers. We must reject exemptions for unethical players seeking to escape laws aimed to protect hardworking families and enforce fairness.”

Cy Richardson, Vice President of Housing and Community Development at the National Urban League: “The Senate’s proposed Consumer Financial Protection Bureau must live up to its stated ideal by protecting consumers from debt traps wherever they lurk. Predatory auto dealers’ fraudulent financing schemes must receive the same scrutiny as those employed by banks and other institutions providing consumer financial products or services.”

Lauren Saunders, National Consumer Law Center: “Unaffordable auto loans are a big part of the financial crisis facing American families. But regardless of their contribution to the current situation, we are creating a new consumer protection structure for decades to come. Do not design it to deal with the last crisis. Auto dealers can and do affect the terms of an auto loan every bit as much as a mortgage broker or originator. The very same practices that have plagued the mortgage industry have plagued auto loans.”

Woodstock Institute: “A carve-out for auto dealers would not only create a carve-out for a large credit market—it would protect a loan product that often contains tricks and traps designed to confuse the consumer and pad profits for the dealer. Auto dealers now make most of their profits not from the sale of the car but from their finance and insurance departments. A recent Woodstock survey of consumer installment lenders making used car loans in the Chicago region found rates as high as 177 percent to borrowers making less than $22,000 a year. Considering the high cost, deceptive practices, and widespread use of dealer-issued auto loans, consumers cannot afford to exempt auto dealers from strong federal consumer protections.”