The National Automobile Dealers Association says that the financial protection agency legislation sponsored by Rep. Barney Frank (D-Mass) does not offer enough protection or exemption from legislation to auto dealers. Frank recently said that he would modify the Obama administration’s current plan to create the agency. Rep. Frank is the chairman of the powerful House Financial Services Committee.
To offer exemption from the legislation, Frank listed certain types of businesses under the draft bill that would not be subject to the regulations. Included were auto dealers, accountants, real estate brokers and lawyers, among others.
The NADA took issue with the draft bill, however, and sent a letter to Rep. Frank stating that the only exclusion is for car brokers, not dealers. Brokers buy vehicles on behalf of customers. There is an exception in the bill for merchants, says the NADA, and this could potentially include dealers, but any financing transactions would not receive exemption from the legislation. This poses a problem for dealers, considering that, as the NADA letter also stated, 94% of all new vehicle transactions involve financing.
David Regan, Vice President of the NADA, wrote, “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.”
Rep. Franks bill will be considered by the Financial Services Committee this coming Wednesday. Spokesman for the committee, Steve Adamske, gave no immediate response when asked for his comments today.
The financial protection legislation is an attempt by the Obama administration to place tighter restraints on and provide for oversight of financing businesses due to the subprime mortgage, credit card and securities scandals.
Some, such as the Consumer Federation of America, believe including dealer financing in the legislation is very appropriate, due to what it considers their often less than ethical practices in extending loans to minority customers.
However, the NADA disagrees, saying that dealer-assisted loans were not as susceptible to manipulation as other financial products, and that they are already regulated by the states, the Federal Trade Commission and the Federal Reserve.
According to the NADA letter, “The retail auto industry, whose lifeblood is access to affordable credit, was a victim of last year’s economic crash, not a contributor to it.”