U.S Senator Calls For F&I Regulations, Elimination of Dealer ‘Mark Up’

The CFPB fined Ally bank $98 million back in December of 2013. They accused Ally of discriminatory auto lending through disparate impact. Basically individuals of certain racial groups had loans that charged them $200-300 dollars more over the entire course of their loan. Their methodology for determining which customer was part of a more challenging loan was done using statisticians. That same methodology was found to be very unreliable through an audit study by Charles River Associates. This is the same organization U.S. Senator Elizabeth Warren would like to give more authority over dealers.

Remember, the CFPB doesn’t have regulatory authority over auto dealers per an exemption in the Dodd-Frank Wall Street Reform act of 2010.

In a speech at the Levy Institute’s 24th Annual Hyman P. Minsky Conference on April 15^th, Senator Warren was frank about her intentions. She talked about how so-called “dealer markup” costs consumers $26 billion per year. She said the auto loan market is looking like the pre-housing crisis market. For her, the answer is to add more regulation and do so via an agency that justified fining Ally bank nearly $100 million through a reportedly unreliable methodology.

During her speech she explained, “Auto dealers got a specific exemption from CFPB oversight, and it is no coincidence that auto loans are now the most troubled consumer financial product. Congress should give the CFPB the authority it needs to supervise car loans – and keep that $26 billion a year in the pockets of consumers where it belongs.” The $26 billion dollar figure referenced by Senator Warren was released in a report in 2011 by the Center for Responsible Lending and is actually based on data from 2009.

This speech from Senator Warren comes at a time when a bipartisan effort is underway to prevent the CFBP from gaining more authority. H.R 1737 is a bill aimed at making the CFPB more transparent. When the CFPB fined Ally Bank, they didn’t have to answer for it to anyone or really explain how they reached their conclusion. This bill hopes to change that by making them show their work to the public. Auto financing allows consumers to obtain vehicles. Owning a vehicle isn’t a right but a privilege, which comes with lender risk. Allowing the CFPB the oversight to come in and tell dealers that they are making too much money seems like a major negative for dealers across the U.S.

What to do you think of Senator Warren’s desire to place the CFPB over dealers? Would this move signal too much regulation for dealers or is the impact of the CFPB overstated? Finally, what government regulations have caused the biggest headaches for your store?