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No special exemption for auto dealers who make or broker loans

May 6, 2010

No Special Exemption for Auto Dealers Who Make or Broker Loans

Dear Senator:

As you debate financial reforms, Consumers Union ®, the nonprofit publisher of Consumer Reports®, urges you to oppose an amendment that may be offered by Senator Brownback that would exempt auto dealers from the purview of the Consumer Financial Protection Bureau (CFPB).

Auto dealers are creditors for millions of consumers who get both their vehicle and financing at the dealership. The transaction of leasing or purchasing an automobile deserves the same oversight that Congress will be ensuring for other lending as part of S. 3217, “Restoring America’s Financial Stability Act of 2010.”

According to a recent study by CNW Market Research, more than half of dealer total profits come not from the sale of the car itself, but rather from the dealers’ finance and insurance departments.

Like too many mortgage brokers, too many auto dealers steer consumers to high interest rate loans when consumers actually qualify for lower interest rates. The difference between what the consumers qualifies for and the loan she/he gets is called the mark-up. Auto dealers are compensated through this mark-up and therefore have incentive to steer consumers to high interest rate loans. According to The Center for Responsible Lending, dealer markups alone cost consumers over $20 billion in unnecessary finance expenses in 2007.

The stated purpose of the CFPB is to regulate the offering and provision of consumer financial products and services. Its objective is to establish fair and comprehensive rules that would be applied across the board to all lenders. Giving an exemption to auto lenders or any other lender will create loopholes for the unscrupulous to exploit hard working consumers. Consumers should be able to get a loan from a lender of their choice and have the same rules apply.

Thank you for your consideration of this important consumer issue. We look forward to continuing to work with you as S. 3217 proceeds to final passage. If you have any questions, please contact Pamela Banks (202) 462-6262 or Gail Hillebrand (415) 431-6747.


Pamela Banks
Senior Policy Counsel
Washington Office