Consumers for
Auto
Reliability and
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Obama administration: Protect Consumers,
Not Shady Dealers

Wall Street Reform Gives Auto Dealers Special Exemption

All Republicans and many Democrats in Congress side with auto dealers -- against car buyers, consumer groups, civil rights organizations, community banks, credit unions, President Obama, the White House, U.S. Treasury, the Pentagon, and groups that represent more than 5.5 million active duty troops, veterans, and their families.
 
The new Wall Street reform bill "inexplicably exempts loans provided
by auto dealers from the bureau's oversight. This is as benighted
as exempting loans underwritten by mortgage brokers."
 
-- Pulitzer-Prize winning financial columnist Gretchen Morgenson,
New York Times, June 25, 2010

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Sacramento Bee Editorial: Don't turn blind eye to predatory lenders
June 19, 2010

"The conferees should fight against any exemption for the payday loan industry. The same goes for the auto loan industry. Auto dealers actively market loans....Typical problems outside military bases include loans with excessively high interest rates and so-called 'yo-yo financing,' where dealers try to change financing terms after a buyer has taken the car...Bottom line: Non-bank lenders, including payday lenders and auto dealers, should be regulated. This nation should not have one set of rules for payday and auto-dealer lending and another set for bank and credit union lending."
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New York Times Editorial: Battle over Reform
June 11, 2010

Banks and other lenders are also fighting to ensure that a new consumer financial protection regulator is neither powerful nor independent. There must be no exceptions for auto dealers and payday lenders, no pre-emptive or veto power for federal officials over the consumer regulator’s decisions.
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Huffington Post: Big banks make desperate last-ditch effort to weaken Wall Street reform
Robert Creamer, June 11, 2010

In particular the auto dealers are trying to convince Members of Congress that they should not be subject to consumer protection requirements when they make or arrange auto loans. Think of the chutzpa. Auto loans are the number one source of consumer complaints to the Better Business Bureau and auto dealers think they – of all people – should be excluded from the consumer protection law?

Any Member of Congress who would fall for that wins the gullibility of the year award. You wouldn't want to rely on someone that gullible to help you shop for a used car, much less write the laws of the land.
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Associated Press: White House opposes auto dealer loophole
Released May 12, 2010

President Barack Obama weighed in on the Senate debate Wednesday, criticizing efforts to exclude auto dealerships that offer car loans from the oversight of a proposed consumer financial protection bureau. Auto dealers — influential figures in their communities — have been aggressively lobbying for an exemption from the law, and the amendment, offered by Sen. Sam Brownback R-Kan., could win bipartisan backing.

“This amendment would carve out a special exemption for these lenders that would allow them to inflate rates, insert hidden fees into the fine print of paperwork, and include expensive add-ons that catch purchasers by surprise,” Obama said in a statement.

The administration has fiercely tried to protect the consumer provisions of the bill. It has answered the political power of the auto dealers with an appeal on behalf of the military, arguing that soldiers and their families have been particularly targeted by deceptive dealers. On Wednesday, Holly Petraeus, wife of U.S. Central Command chief Gen. David Petraeus, made a plea for the bill’s consumer protections to apply to car buyers.

“It’s a fact that military personnel love their cars,” she said. “Sadly, many of them end up paying far more for those cars than they should.” Petraeus, director of the Council of Better Business Bureau’s Military Line Program, said financial counselors at military installations find many of their customers in financial trouble with their auto payments, locked into loans of 15 percent or higher.
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Washington Post: Big business pleads for loopholes in financial regulatory reform
Steven Perlstein, April 30, 2010

"Let's start with the auto dealers, who are running all over the Capitol this week claiming that the cost of an auto loan will increase if they are subjected to supervision by a new agency charged with preventing fraudulent and abusive consumer lending. Judging from their rhetoric about the nightmare they will face with all that costly and time-consuming paperwork, you'd have no idea these were mostly multimillion-dollar retail giants with multiple franchises in multiple cities. Nor would you know that they act as the front end of a giant auto-loan conveyor belt that stretches back to Wall Street's "shadow" banking system. Nor would it be clear that dealers often earn as big a profit financing a car as they do selling it, and that as the point-of-sale lender, they are not above engaging in high-pressure tactics to get customers to sign loan documents before they leave the showroom and before they have a chance to shop around with other lenders.

If there is one lesson that ought to have been learned from the recent crisis – as well as the savings-and-loan debacle of the late 1980s – it is that everyone who engages in the same business should be regulated in the same way by the same entity, irrespective of the charter they hold. If car dealers want to be in the lending business, they should be regulated like every other lender for the simple reason that their customers deserve the same protections as other borrowers.
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The White House: Auto lender lobbyists' last stand

"The fact is, auto dealer-lending is an $850 billion industry, which is larger than the entire credit card industry and they make nearly 80 percent of the automobile loans in our country. Is there any question that these lenders should be subject to the same standards as any local or community bank that provides loans?

Auto dealer-lenders sell auto loans to working families every single day, and while most dealers are no doubt above board, some cannot resist the bigger profits that come from inflating rates, hiding fees, and tacking on over-priced add-ons.

Lobbyists and allies of Wall Street are not letting up and they plan to throw millions of dollars toward efforts to weaken provisions, including an auto dealer carve out in the bill...the President will not rest as attempts are made to weaken the bill."
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Boston Globe editorial: Protect car buyers, not dealers

"...a car loan is the typical family’s second-largest financial obligation, and consumers are just as vulnerable to abuses by local dealers as to those by federally chartered banks. House and Senate negotiators should remove the [auto dealer] exemption from the combined legislation being hammered out in Washington.

...the Federal Reserve has shown that car dealers consistently charge higher interest rates to women, people of color, and senior citizens. Soldiers are also vulnerable. One key opponent to the exemption is Holly Petraeus, director of consumer advocacy in the military and wife of General David Petraeus..."
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USA Today editorial: Put brakes on auto dealers' bid for special treatment

"Autos are the second largest purchase most consumers make, after their homes. HYPERLINK "http://www.responsiblelending.org/mortgage-lending/policy-legislation/regulators/consumer-financial-protection-agency-could-have-stopped-abuses-that-plague-americans-today.html" \n _blankAccording to the Center for Responsible Lending, Americans pay $20.8 billion a year in excess interest by taking out loans through dealerships instead of going to a bank or credit union. Leasing documents are notoriously opaque. Dealerships also routinely finish at or near the top in complaints to Better Business Bureaus and state consumer protection agencies.

Dealers are looking to shield their lucrative lending business from questions about its fairness. While auto loans were not the prime generator of the recent credit bubble, many were sold and securitized the way subprime mortgages were. That's a recipe for excess.

Given all the efforts of businesses to get people to overpay on interest, HYPERLINK "http://www.propublica.org/ion/bailout/item/car-dealers-protected-from-new-consumer-protection-agency-1027" \n _blanka strong federal consumer protection agency would be a good idea even without a global financial crisis. Predatory home lenders, deceptive credit card companies and, yes, coercive car dealers deserve greater scrutiny, regardless of their political clout."
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Providence Journal op-ed: Save car buyers from bum rides

"Auto dealers and their loan partners tend to portray themselves as a victim of the financial crisis, or as Main Street plain folks clucking at Wall Street’s machinations, just like the rest of us. Hedge funds and banks may need regulation, they say, but not them. But in fact they contributed significantly to the financial meltdown. Car loans were securitized in risky ways just as home mortgages were. In addition, many car dealers are part of chains publicly traded on Wall Street. And even if they are local businesses, their loan components, like GMAC, often are not." Op-ed by Catherine Lutz and Anne Lutz Fernandez, authors of Carjacked.
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St. Petersburg Times column:

"It is unfathomable that Congress is poised to exempt car dealers from oversight by the new government agency designed to protect consumers from financial predation. Haven't these people ever bought a car? Here's a better question: Don't members of Congress care about our soldiers? Whatever happened to "Support Our Troops"? Our true-blue service members end up in the red financially because car dealers notoriously target service members for predatory lending.

The problem is so pervasive that the Defense Department says 72 percent of surveyed military financial counselors in bases across the country said they have seen these problems within the prior six months. This also affects military readiness. "A service member who is preoccupied with financial problems is one who cannot do his job effectively. If he loses his security clearance because of those financial problems, he cannot do his job at all," [Holly] Petraeus, [director of the Better Business Bureau's military program and the wife of Gen. David Petraeus], said.
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Washington Post op ed: Auto dealers are part of the problem,
need to be regulated under financial overhaul of the regulatory system


"Auto dealers, like mortgage brokers, can and do mark up the interest rate on a loan so that the buyer pays more than what he or she qualified for. Like mortgage brokers, auto dealers can decide which lender to use for the deal, and the auto dealer can decide to use the one that will pay the biggest markup. This business model makes the industry ripe for predatory dealers looking for easy money. And there's no reason that the [Consumer Financial Protection] bureau would threaten the availability of low-interest rate loans. In fact, bureau oversight should encourage them.

So, conferees, whose side are you on – the auto dealers or our troops, small banks, credit unions, civil rights organizations and consumer groups? Seems like an obvious choice."
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Buyer Beware! Auto dealers' one-
sided contracts can ruin your life
Even if the dealer breaks the law, you might not be able to get justice. Forced arbitration clauses hidden in the fine print can keep you tied up for years. The dealer even gets to pick the arbitrator who hears your case. Here's what happened to a car buyer in San Diego:
Think this is outrageous? Call your member of Congress at 202-224-3121, and urge them to vote for the Arbitration Fairness Act. More about the AFA, now pending before Congress:
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