CFPB Wants To Regulate Dealer Financing, NADA Doesn’t Support

In a report back in 2014 we told you that the Consumer Financial Protection Bureau (CFPB) is aiming to regulate automotive financing. They slapped Ally Bank with a fine which in total was $98 million. However, their methodology for reaching that figure and accusing the bank of racial loan bias was essentially debunked in a study from Charles River Associates out of Boston.

The CFPB doesn’t have direct authority over auto dealers and their financing due to a provision in the Dodd-Frank WallStreet reform act of 2010. However, they have still gone after certain auto lenders and a large buy-here, pay here dealer group called Drivetime. The organization seems to be slowing expanding their interest towards dealers even if indirectly though investigation of financing organizations. A new bill, which has strong support from NADA, wants to regulate this regulator which is not even accountable to Congress.

A press release by NADA explained the need to regulate the CFPB. The government organization is reportedly attempting to take away dealers ability to discount the APR that they offer consumers who opt for in-house dealer financing. Part of the press release reads, “The CFPB is attempting to change the $905 billion auto loan market and limit market competition without prior public comment and without analyzing the impact of its guidance on consumers. ”

The CFPB apparently also wants to regulate the relationship between dealers and finance sources such as banks and credit unions. This could take away the advantages of fair competition. Part of the NADA release on this issue reads, “The CFPB’s guidance attempts to eliminate a consumer’s ability to get a lower rate at a dealership by pressuring finance sources into changing the way they compensate dealers to a ‘flat fee’ that dealers cannot discount.”

The CFPB feels there is a “fair credit risk” associated with the current method and they want to change it, but how they reach those conclusions is has either been debunked by Charles River Associates or not fully explained despite 12 congressional letters asking for further explanation of their methodology. This is clearly a legislative battle that will continue into the coming years as dealers and NADA deal attempt to combat their would-be government regulators.

What do you think of the CFPB? Is this government group overly interested in retail automotive, or are they simply protecting the consumer? Do you feel that they should be regulated, or do you support their current ability to govern?