House Bill Exempts Auto Dealers from Agency Regulation

The new financial overhaul bill was set to land on the House floor on Wednesday, and was approved by consumer groups, with the exception of an exemption that would offer a lot of freedom for auto dealers. According to the guidelines of the new bill, auto dealers would not need to be regulated like other financial entities.

What is the Consumer Financial Protection Agency?

In the wake of the financial crisis, President Barack Obama determined that one power needed to oversee and regulate the entire financial system, including complex derivatives and home mortgages. The power will be the newly formed Consumer Financial Protection Agency.

As it stands, this agency will be obligated to safeguard against mortgage, credit card and other abuses that contributed to the current financial crisis. However, in the new House bill that will make the oversight final, auto dealers seem to be left out of deal, to consumer groups’ dismay.

Why Consumer Groups are Unhappy

According to the consumer groups, it’s reckless to not include auto dealers in consumer protections. California Republican John Campbell (a former auto dealer), who won the exemption for auto dealers in an amendment he proposed, says that auto dealers shouldn’t be regulated because they don’t finance cars and are instead passive intermediaries. However, consumer groups argue that auto dealers have a huge influence over the tight of loan a consumer can receive.

Here are a few other arguments from consumer groups:

• Loans offer huge profits to dealers: Groups argue that dealers have a lot to gain from not being regulated because they arrange loans with financial companies and make money by raising interest rates or injecting extras like fabric protection that carry questionable value.
• More consumers complain about auto dealers than reported: Some auto dealers argue that less than one percent of complaints to the FTC were auto related and thus should leave them exempt from regulation. However consumer groups say consumers complain to their state attorney general or their city consumer protection agency. In other words, consumers have more complaints than shown in some mass database.

A Little Favoritism, Maybe?

Wall Street professional Raj Date argues that the real reason auto dealers may be exempt from regulation is political favoritism. Auto dealers spent about $10 million lobbying last year and gave $3.5 million to current House members during the last campaign.

Date argues that the exemption may be less about the lack of a need for regulation and more about favoritism.

The problem with auto dealers being exempt from regulation is that they may impose unfair practices on you as a consumer. So if you are in the market for a new or used vehicle, it’s very important that you take the initiative to know what you’re paying for and read your contract thoroughly, or even consider financing your vehicle through an outside financial institution.

If you’re not sure which route you’d like to take, learn more about the advantages and disadvantages of dealer financing at Go Banking Rates.