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Car dealers are not banks, and should be exempt from new regulator, dealers say
October 28th, 2009, 10:00 am · 10 Comments · posted by Teri Sforza, Register staff writer
Consumer groups are blasting Rep. John Campbell’s proposed amendment to the Consumer Financial Protection Agency Act, which would exempt car dealers nationwide from federal regulation aimed at protecting the little guy. (We delve into the pros and cons of that idea in our stories here and here).
John Sackrison - executive director of the Orange County Automobile Dealers Association - says they’re off the mark. (And we at The Watchdog have just had our own adventure in car-buying land, and share our newfound wisdom below.)
“It’s unnecessary,” Sackrison said of the regulation. “I don’t think the consumer groups quite understand the role the dealer plays. The dealers are not banks or financial institutions; they just help arrange the financing for the consumers. They’re not the consumer’s only option - consumers can go to the credit union or the bank, whoever they would like.
“So since the dealers are not a bank, it doesn’t make sense for them to be regulated as a bank, with all the burdens that go along with that. That would make it very difficult to help consumers secure their financing. The dealers are already regulated by the federal government, and this would be one more layer of regulation unnecessarily. The dealers aren’t loaning the money.”
So, who is loaning the money? “Captive finance companies.” What’s that? “A subsidiary whose purpose is to provide financing to customers buying 
the parent company’s product,” an investing dictionary tells us.
These captive finance companies - which would be subject to regulation by the new agency - exist to provide affordable financing to consumers, and want customers to come back, and so are unlikely to misbehave. Something like, say, Toyota Financial, exists “to move the metal,” Sackrison said, and tries to do what’s best for the consumer.
“Dealers getting lumped in with credit card companies and banks doesn’t make a lot of sense,” he said. “Dealers that do originate and hold the loans, they are subject to regulation under the act. They are not exempted. Those are mostly used car dealers - buy here, pay here sort of places. And they should be subject to the act.”
So, in short, something like Toyota Financial Co. would be regulated under the act, but the Toyota dealers themselves should not be, he said.
Which brings us to The Watchdog’s recent experience buying a new car. Which brings her some shame.
We checked around for the best loan rates and all that. But when we were actually in the dealership, smelling the new car smell, pulling out our checkbook, our brain seized. We told the dealer we planned to finance through our credit union; the dealer said he could match that rate; and so we said sure. Unfortunately, we failed to actually ask what precisely that interest rate was, and once we realized our bone-headedness, we were too afraid of what we had wrought to actually look at the paperwork.
Sackrison urged us not to be frightened. We held our breath and took a look: 6.75 percent.
OK. We called our credit union again. Their best rate was 6.99 percent, we were told. Ooo! We felt lucky! Until she said that, if we signed up for automatic monthly payments, the rate dropped to 5.99 percent.
Ah. Well. Luckily for us, the credit union will let us refinance. The moral is, don’t be a dolt, do your homework, read the paperwork, and remember that it’s always easier to give good advice than to follow it yourself.
More Watchdog:
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Sakrison is right on this.
Seems to me that one Section of HR 3126 is very applicable to the auto dealer industry. Specifically:
SEC. 131. PROHIBITING UNFAIR, DECEPTIVE, OR ABUSIVE ACTS OR PRACTICES.
Which is one of the foremost industries that comes to the consumer’s mind when unfair, deceptive and/or abusive business practices comes up in a conversation??
Oh, and the statement that car dealers are not banks is a lie. GMAC is now a bank and has been blessed with $BILLIONS$ of US taxpayer’s monies in the form of a bailout. GMAC is an arm of General Motors. GM brings in significant revenue, not just on auto loan but on mortgage loans. They blew up because they made bad bets on the subprime markets and were rolling over auto loans resulting in the loan being larger than the value of the car. When people stopped paying on their loan GM got caught holding the bag.
I have spoken to many who have been hosed on dealer auto loans. THAT is why the auto dealers should be FORCED to comply with the terms of the Consumer Protection Act of 2009. If the auto dealers don’t want to be part of this legislation the solution is easy: Discontinue the financial arms of your dealerships which rakes the consumer over the coals.
GMAC does much more than car loans, after years of losing money on 1% or less financing their only profitable unit was Ditech and their Alt-A homecomings, Sub-Prime was essentially outsourced. I think taxpayers ought to be exempt from all this “change” but I guess folks ought to be more careful in what they wish for.
BTW, that mouse question is ROFL, and if people don’t want to pay high rates of interest they can either choose cash or simply pay their bill on time and get the best rates in that regard the market is already self regulating and purging itself of the last Govt intervention.
Did you guys get approval from Disney to use that graphic?
Just wondering….
@ocobserver
You’re an idiot. GM divested from GMAC several years ago. Very few (if any), Auto dealers provide direct financing to car buyers. Furthermore, most dealerships are independent subsidiaries not owned and operated by the car companies.
“I have spoken to many who have been hosed on dealer auto loans. ”
We both know that’s bullshit. You don’t know anybody who’s been hosed by an auto dealer, but i’m dieing to hear the “true” stories you’re going to make up to explain yourself.
Less time in your mom’s basement, more time getting outside in the real world.
patriotaxiom,
Fabricator. When the homeloan business blew up in GMAC’s (wholly owned by GM) face after making bad bets on the subprime mortgages they were forced to sell off part of that mortgage business to Capmark Financial to save their worthless butts. They still retain 21% of that business.
And when the car loan business blew up in GM’s face they were forced to sell off 51% of the auto loan business to Cerberus. GM made stupid marketing decisions and couldn’t sell a car to save their lives. The japanese have been running circles are them for years and years. GM were rolling over loans on autos and the loan balances were higher than the value of their cars! hah! And when the loan holder decided to stop making payments guess who got caught holding the bag. Dumb as a bag of rocks! No wonder they went bankrupt!!! hah!
And in 2009 when Chrysler went belly up GMAC took over auto financing for their customers! hah! Most dealerships are going broke. They are closing up shop left and right. How could they possibly provide direct financing?? And those few that do need to be watched like hawks since they’ll rip off an unsuspecting customer at the drop of a hat. There is NO industry in the american marketplace (other than the banks and insurance companies) that need more oversight than the auto dealers. Ford also has it’s own financing arm. But at least Ford didn’t have to line up at the gobblement feeding trough to get bailouts so it could stay solvent! hah! And now Ford has to compete with the gobblement in financing it’s vehicles so we’ll probably see them needing a bailout in the not too distant future as well!!!
So you don’t have a clue of what you speak of, patriotaxiom. Campbell made millions off the auto dealer industry. Now he’s just doing a favor for his homeboys but not without a payback. Check out where his campaign contributions are coming from!!! hah!
we’re not as stupid as you appear to be out here!
Oh, and I see today that GMAC, the financial arm of GM, is asking for their THIRD bailout from the gobblement!!! HAH!
What a bunch of hotdogs! They could run a kool-aid stand and turn a profit!!! HAH!
I say sell them off to Korea or Japan. Somebody who knows how to build a car and make money.
Turn all the dealers into aerobic centers or big internet cafes!
Mr. Sackrison has correctly stated the primary issue in yet another sad example of government overreach and intrusion into areas that they should stay away from. The angry consumer groups are lumping auto dealers into the same pot as banks and other lending institutions. Clearly (but I guess not clearly for some who apparently don’t like to get the facts straight) auto dealers are not banks or financial institutions. Just as clearly is the fact that they just help arrange the financing for the consumers - and many consumers arrange their own financing. This is just another indication of the slide toward statism (and, yes, socialism) and another nail in the coffin of free enterprise and the fading sense of American exceptionalism.
Thomas - you folks already killed free enterprise with you stupid marketing decisions that turned the lion’s share of auto sales over to japanese companies and rolling over auto loans and making bad bets on subprime mortgages through GMAC and other financial arms of the auto dealers. Oh, btw, GMAC is now officially a bank. And GM still owns a piece of GMAC. Go read the news before you come here and spout off about things you know nothing about.
Well…how about considering whether they received bail-out money to even exist for business ?…
dealers should then be regulated in that they did receive public funds in doing business with the public.