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Car dealers want to evade thumb of new consumer protection agency
October 20th, 2009, 5:00 am · 30 Comments · posted by Teri Sforza, Register staff writer
(Vote in our poll: Should car dealers be exempt?)
The financial meltdown led some folks - including the president - to opine that the little guy has sure taken it in the shorts these last few years, and that government must do more to protect consumers.
Enter Congressman Barney Frank, chairman of the House Financial Services Committee, with his proposed Consumer Financial Protection Agency Act of 2009, which would create an independent agency “to protect consumers against unfair practices by financial services companies.”
It turns out that car dealers facilitate a good bit of financing. Now enter Rep. John Campbell, R-Irvine, a former car dealer who is not a big fan of the proposed agency. Campbell will offer an amendment to Frank’s bill, exempting auto dealers from its potentially-weighty thumb. The essential argument is that they’ve had their worst year in decades, they’ve lost 100,000-or-so jobs, and they shouldn’t be kicked while they’re down.
To which a chorus of nearly 40 consumer groups says, “Fie!”
“When you look at state and local consumer agencies on the front lines, auto sales and service is always the No. 1 problem people complain about, year after year after year,” said Rosemary Shahan, president of California’s Consumers for Auto Reliability and Safety. “Everyone and their brother wants an exemption, so car dealers aren’t alone. The question is, are they going to get away with it?”
WE’RE ALREADY REGULATED ENOUGH, DEALERS SAY
A letter from the National Independent Automobile Dealers Association supporting Campbell’s amendment ( niada-letter-to-frank) says the bill “would subject auto dealers to a myriad of new regulations…at a time when the automobile industry is having its toughest times in over two decades.
“Motor vehicle sales are already extensively regulated by the Federal Reserve Board the FTC (Federal Trade Commission) and in all fifty states,” the letter reads. “In light of the current credit crisis and the lowest auto sales in a generation, a dramatic restructuring of the laws governing auto finance would create uncertainties, unintended consequences, and increase consumer costs that could further depress sales.”
Campbell has posted on his web site an article from The National Review, arguing that the new agency would hike the cost of credit for consumers. “The ostensible purpose of the new agency would be to protect borrowers from unscrupulous lenders, but - since fraud and deception already are against the law - it would be more accurate to say that its purpose would be to protect borrowers from themselves,” says the piece.
“Even though it was mortgage defaults that caused the crisis, the CFPA would have the power to regulate all sorts of financial products, from credit cards to car loans to bill-me-later shopping. The agency ‘could literally wind up having federal approval required every time your local mattress store says come in and buy a mattress, no payments for 90 days,’ explains Rep. John Campbell, a California Republican who sits on the House Financial Services Committee. ‘The reach that agency could have, the effect that could have on innovation, could be terrible.’”
Brent Hall, Campbell’s press guy, stresses that most deals made through dealerships are done through third-party loans. “If these dealers were subjected to CFPA, ostensibly they could be regulated in terms of how they market and advertise, how their showroom is designed, and theoretically they could even have their prices regulated,” Hall said in an email. “Auto dealers are already and will continue to be regulated by the States, the Federal Reserve Board, and the Federal Trade Commission under this amendment.”
(Read “talking points” about the still-being-modified Campbell amendment here: campbell-amdt-talkers.)
OH, PUH-LEASE, CONSUMER GROUPS SAY
Frank is up-front about the agency’s long reach - which he and others think is sorely needed.
“The proposed legislation is part of comprehensive financial regulatory reform undertaken by the House Financial Services Committee this year, including bills to restrict subprime lending and to stop deceptive practices by credit card companies,” Frank says on his web site. “Existing institutions have failed to protect consumers against abusive practices…. Although Congress gave the Federal Reserveauthority to oversee mortgage lending in 1994, the Fed failed to use that power during the boom in subprime lending which was a major cause of the financial crisis.”
A recent letter from consumer groups strongly urges Frank “to ensure that all activities of auto dealers related to the financing of cars are fully included under the jurisdiction of the Consumer Financial Protection Agency.” (Read the full letter here: consumer-letter.)
“Loan financing represents a huge source of income for auto dealers,” says the letter, signed by Consumer Watchdog, Consumers Union, the California Public Interest Group, the NAACP, and many others. “While the vehicles themselves have never been better, auto sales and financing practices have never been worse. In fact, year after year, auto sales and service complaints, typically related to predatory lending practices at dealerships, rank number 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. As a result, most moderate and low income consumers are vulnerable to predatory auto lending. Young people purchasing their first autos and members of the Armed Forces are particularly vulnerable, sometimes suffering losses that damage their credit and have a negative impact that lasts for decades….
“Consumers desperately need federal protection from ubiquitous predatory auto lending practices and multi-billion dollar auto sales frauds. Because dealers are selling both the car and the financing at the same time, often in addition to taking a trade-in with an outstanding lien balance, it is impossible for consumers, or regulators, to separate the two transactions. This causes a lack of transparency and a complexity that hamper consumers from being able to protect themselves.”
WHAT DO YOU THINK?
So! Surprise, surprise - there’s certain to be yet another down-and-out fight on Capitol Hill. Consumer groups will hold a press conference to press their points today. What do you think? Vote in our poll here.
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I don’t see it as kicking them when they’re down. I see it as a chance for the dealerships to rise above the level of respect once reserved for TV repairmen and auto mechanics. The mechanics were brought under control by legislation and the creation of a government department to oversee them and it worked out well. One of governments rare successes at “protecting”us. TV repairmen simply vanished as a result of economic and technical changes. But slippery car retailers are going to remain until something is done. I have never agreed with Barney Frank and may never again but this time, I do. I think it’s a pretty good idea. I would rather see it done state by state but on the other hand it is a widespread problem and may need a blanket solution. Now as long as the Democrats can resist the notion to go too far with this legislation, such as different riders and extra pork for special interests, it just might be something good that we can all live with and maybe, just maybe,…. it might go a ways to actually protecting consumers from bad car lending practises.
I am on the fence on this one.
Buying a car in California is pretty straight forward. Existing laws already spell out in contract form how the car is being sold to the consumer. Financing, payments, loan total, how much your paying in interest, etc… It’s pretty self explanatory if you take the time to read the contract, which by the way most people don’t.
About the only thing left is to have a third party in the negotiations holding the buyers hand!
The States Bureau of Automotive Repair is pretty “Johnny on the Spot”, when it comes to dealing with consumer complaints, and they have been around since the mid-70’s.
I went to the link and read through the bill, but there are no specifics when it comes to the Auto industry. I did note some of the following wording;
SEC. 131. PROHIBITING UNFAIR, DECEPTIVE, OR ABUSIVE ACTS OR PRACTICES.
(a) In General- The Agency may take any action authorized under subtitle E to prevent a person from committing or engaging in an unfair, deceptive, or abusive act or practice under Federal law in connection with any transaction with a consumer for a consumer financial product or service.
(Hmmm, that already exists in California)
SEC. 132. DISCLOSURES AND COMMUNICATIONS.
(a) In General- The Agency may prescribe regulations to ensure the appropriate and effective disclosure or communication to consumers of the costs, benefits, and risks associated with any consumer financial product or service.
(b) Reasonable Disclosures and Communications- Subject to regulations prescribed by the Agency, a covered person shall, with respect to disclosures or communications regarding any consumer financial product or service, make or provide to a consumer disclosures and communications that–
(1) balance communication of the benefits of the product or service with communication of significant risks and costs;
(2) prominently disclose the significant risks and costs, in reasonable proportion to the disclosure of the benefits;
(3) communicate significant risks and costs in a clear, concise, and timely manner designed to promote a consumer’s awareness and understanding of the risks and costs, as well as to use the information to make financial decisions; and
(4) comply with standards prescribed by the Agency.
( again, already in place in California))
I would like to see the nuts and bolts details before jumping off the fence on this one.
I did note while reading through the bill that it sure creates a big beurocratic addition to the Govt.
Isn’t this a big conflict of interest matter for Congressman John Campbell being a former car dealer??? Correct me if I’m wrong but I believe he opted out on the vote involving ‘cars for clunkers’ because he told us being a former car dealer would pose a conflict. Yet here he is adding an amendment to Frank’s Bill to exclude car dealers from the increased oversight?? WTH??
Hey John, it’s been a real bad year for consumers too. Not just car dealers!!! Millions of us have lost our jobs, homes, savings, etc… ONE IN SIX AMERICANS IS LIVING IN POVERTY!!! So don’t expect to get our sympathy for your car dealer friends. Did the car dealers vote you into office or did the people vote you into office. Better figure out which side of your bread is buttered and who put it there!!! You’re coming up for election again in a little more than one year!!!
I agree! If you know anyone that has ever been to Elmore Toyota in HB, you already know that once you hand over your keys that you will NEVER see your original car again. You WILL be leaving in a car from them. I’ve been through the process twice there and twice the idiot that I am, we’ve left with a different car that we came in with. Once was to check on a lease for my daughter and the other was just looking around to see what was available. They simply will not let you leave. You get so confused about payments that you finally sign the contract just to leave. I know that this sounds stupid from a grown woman but try it some time, you won’t believe it.
linda, once bitten, twice shy. NEVER give your real keys to the car salesperson! Keep your ID and keys with you, one is under no obligation to provide anything to those rats!
More unsustainable liberal BS, the last thing we need for “recovery” is another bloated Govt Entity that will hold peoples hands while reading the fine print aloud. Transparency is already mandated and if people are too stupid or oblivious to not understand what they are signing they should have to sign a waiver, not take more tax dollars for “protection”.
Greed from all parties has fueled this “meltdown” now if they could just stop passing the bill around and get to work on a solution.
Here, Here ! Talk about government bloat…
Transparency may be mandated, but it is definitely NOT being practiced, especially within the government!!! Which is why this whole thing is an absolute joke, being that it’s proposed by Barney Frank, the king (or, uh, is that queen?) of the sleight of hand!!!
That said, I believe that John Campbell has a lot of nerve trying to absolve car dealers from this proposed legislation! But no one should be surprised at anything coming out of the government ~ be it on the federal, state or municipal level. These slimebags are w/o question ONLY interested in their own gains!!!
Informed consumers should have enough savvy to handle their own finances without oversight by another government bureaucracy. Just as nobody forced anyone to take on mortgages they couldn’t afford, nobody is forcing anyone to buy a car with unfavorable loan terms.
Whatever happened to individual responsibility?
I agree with “DISCO”–well said! Ignorance is bliss. And it’s costing our nation tons!
It is a function of government to protect the weak. Car dealers are notorious for bait and switch tactics, excessive finance rates and all manners of unethical treatment of the general public. It is time to at least take the dang laser beams of the heads of the man eating sharks, and give those most at risk a decent chance to obtain transportation without going broke in the process.
Why should car dealerships be allowed to be predatory lenders? Because it will help them rebuild their businesses? Why don’t we let them rob banks, too?
The O. C. Register should check the facts. Car Dealers do not act as lenders. They can send their customers to local lenders, but do not have any affiliation with said lenders.
Enough with the government stepping in and relieving people of their responsibility. I am sick of paying for the dummies out there, who act in a stupid manner, then expect us to FIX their life.
John Campbell says that he added the amendment to protect the car dealers from additional oversight since they had the worst year in a decade and we shouldn’t kick them when they’re down!!!
hah!!
What about the consumer who, by no fault of his own, got caught in this economic meltown by means of Wall Street fraud and lack of government oversight??? Should the consumer get kicked when he’s down??? Are those the rules of the game??? So business gets a pass and the consumer gets kicked, eh??? Oh, that’s nice. Just another flogging for the common citizen. By this time we’re getting used to it!
1. Campbell is wrong. People do need protection and especially against car dealers.
2. Conflict of interest for Cambell because of his interest in dealerships.
Surprisingly but I’m with Barney on this one.
I LIKE FRANK IDEA. IT HAS BEEN A MAJOR HEADACHE FOR CONSUMERS WHEN IT COMES TO AUTO . DEALERS ARE RIPPING CONSUMERS DAILY.
At what point do we grow up become an adult? Can’t people do a little homework and make their own choices? If a dealer is going to charge you 20% interest on a purchase, don’t buy from him.
You can lead a horse to water and they still won’t drink…. But how much gov. oversight is enough? When will a gov. agent be standing by my fridge and watch what I eat, how much sleep I get at night, etc.
Sometimes a buyer is going to not get the best deal and that is part of life. But in America, we are supposd to have a free market, where buyers and sellers act freely and every day.
Our government is adding layer after layer of more gov. oversight to save us from ourselves. When will it end?????
But the dealers aren’t honest. They LIE to the customer or simply OMIT important facts that the consumer should know prior to making a purchase. If the dealer didn’t LIE there would be no need for consumer protection. But in America the consumer shouldn’t have to detect and uncover the LIES and OMISSIONS!!! The seller should be OPEN and HONEST with them to make a sale. If they can’t speak HONESTLY then something is wrong with the product they are selling. If the consumer LIES to the dealer by giving him bad credit information, a faulty payment, etc… he gets called on the carpet. SO SHOULD THE DEALER. It goes BOTH ways!!!
And CAMPBELL needs to start serving his constituents and STOP protecting his buddies in the auto industry. Who’s scratching who’s back there?
Barney Frank, the man responsible for our current financial DISASTER, tries to create more problems and Campbell is the only person willing to stand up to this economic hack and people are attacking him? Give me a break! I wouldn’t trust a “protect the puppies, grandma, and baseball Bill” if it came from Barney Frank’s twisted sense of how to run this country. Stay strong John Campbell!
Yeah, John. Stay strong and keep protecting your buddies in the auto dealer industry while you kick the common man to the curb!!
We’ll remember that in Nov of 2010.
Regulation of theives like the banking, auto and credit industies is needed in the worst way, just look at what the banks are doing now that their butts have been saved by US. Hell these freaks are getting more in bonuses than 100 families at average salaries will make in a thousand years; for what? destroying capitalism and placeing the entire country in servitude to the communist Chinese. Yes that is good for the dummies out there that follow rethuglican talking points to the letter but not for the rest of the country or world.
The government needs to stop reaching it hands into every part of life, people need to take responsibility for their choices and this bill is the government once again trying to baby everyone and convince them that they need protection from big scary car dealers.
Campbell is right to object to this, we need leaders who will fight bigger government
Christine,
Yeah, campbell voted for the $850 billion dollar bailout in Oct 2008 and voted to give million dollar bonuses to the AIG crooks who ran their company into the ground and Campbell approved of the 180 BILLION dollar bailout Bush gave to the AIG executive hogs.
is that what you call fighing big government???
HAH!
Common Car-Dealer Tricks
http://www.getrichslowly.org/blog/2009/06/23/common-car-dealer-tricks/
Why would we want the auto companies to be hurt more than they already have? The hit was huge and people needed to step up and help for everyone!
“They all wan’t a coach and six , and to be fed turtle soup and venison with a gold spoon ”
from “Hard Times” by Charles Dickens
Keep up the good work John!!!!
The socialistic regulatory state operates from leftwing economics, which holds that SELLERS are crooks, but BUYERS are noble and virtuous.
And of course, the government is flawless, omnipotent and omniscient and has a “right” to interfere with ALL of our intimate, private transactions.
There are already enough consumer “protection” laws to choke a horse. No more agencies are needed.
What we truly need is MORE FREEDOM. Less government.
Now that the feds have ownership stakes in GM and Chrysler, is Obama proposing a new gov’t CONSUMER agency that could sue the gov’t AUTO dealers? Worst of all, us poor hapless consumers get to pay for BOTH sides of that transaction. Who protects the consumer from the leviathan predatory GOVERNMENT? How insane can it get!!
Basic laws against force and fraud can work well without the thousands of tax feeders who already run the scores of consumer “protection” scams.
Obama should dump the idea of yet more agencies. If he wants to do something beneficial, he should End the 3 wars he is fighting, bring the troops home. Stop the deficit spending. i.e., Save our dollar.
Three Million federal trough feeder parasites are living off the productive efforts of 120 million private market workers, taking over 1/3d of the productive wealth of this nation. And the first thing Obama can think of is to hire more lawyers. God help us.
I don’t know what worse, the “Regulations” or the loan service industry trying to skirt the new lending laws that go into effect in February.
It’s as if the Banks (ALL BANKS) are playing “BEAT THE CLOCK’ by changing their “TERMS OF CREDIT AGREEMENTS” before the law can go into effect.
So, what’s worse? If they had left the banks and lenders alone, would they still be squeezing the little guy by REDUCING CREDIT LIMITS WHILE JACKING UP INTEREST RATES?
WELLS FARGO and CHASE seem to be the biggest abusers at the moment. BOTH received TARP money that ranges in the BILLIONS so that (in Obama world) they would loosen up the credit market and start monetary growth in the economy…but all they did was take the money, close up the lending market and started buying up other BANKS! Thus limiting their competition.
I have been a Wells Fargo customer for over 25 years, I have EXCELLENT credit, never late, no over drafts…and in ONE MONTH I received notice they were lowering my credit limit on my Visa AND that the amount that I owe on it (less than $3,000.) will go from 7% interest to 12.65 PERCENT! That is unless I OPT OUT and close the card, then they will generously let me pay it back with the 7% rate. I ONLY USED THE CARD BECAUSE THEY SAID IF I DIDN’T START USING IT…THEY WOULD LOWER MY CREDIT LIMIT!!!
THIS AMOUNTS TO LOAN SHARKING!… How can ANY business loan maney at ONE rate and then say “OH, BY THE WAY, FOR NO REASON AT ALL WE’RE JACKING YOUR RATE UP”.
Now tell me…what happens to the people who owe $30,000.00, they borrowed at one interest rate (not a teaser, the REAL rate) and right when the economy goes bust they get jacked by their banks.
So…who’s going to step in? our Government? I think they’ve done enough damage. Let the credit markets settle themselves…before all this “Stimulus” money was doled out, banks were fighting over customers trying to lure them away so they could collect the interest on money owed…NOW they don’t need it, they have our MONEY ANYWAY!
The real argument hear is not whether this is a good or bad amendment ( I feel that it is a great amendment ) The argument in Washington should be the legitimacy and need of this “Consumer Finical Protection Agency”