Last week, the House Financial Services Committee voted to establish a new Consumer Financial Protection Agency. The agency would have broad authority – but thanks to fierce lobbying, it’ll also have big gaps. Consumer advocates point to an exemption for auto dealers as one that’s particularly worrisome.
An amendment stripped auto dealers from the proposed agency’s oversight. With strong backing by the powerful dealer lobby, and despite the White House’s attempts to kill it, the amendment easily passed in the committee, 47-21. Nearly half of the panel’s Democrats voted for the amendment along with the committee’s Republicans, who’ve generally opposed the new agency.
The exception for auto dealers sets up an odd situation: Many of the larger financial institutions that provide auto loans will be under the new agency’s supervision, but that supervision would stop at the dealer’s door. That’s more than a technicality, consumer advocates say, because some dealers exploit their role as the middleman between the consumer and the loan.Those dealers tack on unnecessary fees and steer customers into higher-cost loans, splitting the difference with lenders. “The buying process itself is intentionally structured to be needlessly complicated and time-consuming to wear down and confuse car buyers,” said John Van Alst of the National Consumer Law Center.
About half of auto buyers finance their purchases through their dealers, but that proportion is even higher for families with lower incomes, said Van Alst, and minorities are particularly at risk. In a letter to the committee’s leadership this month, the Consumers Union, the NAACP, the National Consumer Law Center and more than 30 other groups argued against the exemption, pointing to a pattern of abuses.