July 2015 SDADA Column

But the bottom line would be that auto dealers would be exempt from direct supervision by the consumer financial protection bureau. The Senate auto dealer compromise, if accepted by House negotiators, would be one of Obama's most high profile losses in his efforts to overhaul Wall Street regulations. The main contours of the House and Senate bills generally match the administration's goals, but Obama has personally lobbied against efforts to carve auto dealers out of the consumer agency's jurisdiction.   - CBS Money Watch, June 23, 2010

In 2010, a Senate made up of 59 Democrats and 41 Republicans and a House made up of 233 Republicans and 200 Democrats passed a Dodd-Frank bill creating the Consumer Financial Protection Bureau (CFPB). Immediately concerns were raised since due to its unprecedented investigative and regulatory authority, its lack of accountability, and the unparalleled authority placed in its sole director, Richard Cordray.

Despite the above mentioned dealer exemption, the CFPB has made every effort possible to indirectly end the auto lending business model. Beginning with the Ally Bank settlement in December 2013 ($98 million) and recently the agreement by American Honda Finance Corp. to pay up to $25 million, the CFPB has bullied, intimidated and harassed automobile lenders in an attempt to end discretionary dealer markups.

The CFPB continues to have the dealer finance model squarely in its crosshairs. I don't think I need to mention to this audience that were it not for finance income, the new vehicle department would be largely unprofitable in most stores.

Though a couple of automotive lenders have embraced a flat fee model, most have remained committed (for now) to the current dealer discretion finance model. One has to wonder how long they (especially non-captives) will endure the CFPB's scrutiny.

NADA recently filed a Freedom of Information Act (FOIA) request to make public an agency memo that appears to plainly undermine the Bureau's long-standing claims that it is not targeting auto dealers through enforcement actions.

The Dodd-Frank Act specifically prohibits the CFPB from regulating auto dealers. Yet the Bureau's actions have caused many, including both Republican and Democratic members of Congress, to question whether the CFPB has attempted to skirt its jurisdictional boundary in an effort to regulate dealers.  -NADA News Release

Reps. Frank Guinta (R-N.H.) and Ed Perlmutter (D-Colo.) have introduced H.R. 1737, the Reforming CFPB Indirect Auto Financing Guidance Act of 2015. The legislation would repeal a CFPB bulletin from 2013 that was designed to pressure lending institutions into eliminating the availability of auto financing discounts.

Stay tuned. It would seem this issue is far from settled!

Blumenthal Wants to Ground Used Cars With Open Recalls

The Senate will soon vote on an amendment that would make it illegal to sell for dealers to sell any vehicle with an open recall. Though the Senate Commerce Committee (chaired by Senator Thune) shot down the Democratic amendment proposed by senators Ed Markey (D-Massachusetts), Bill Nelson (D-Florida) and Richard Blumenthal (D-Connecticut) that would ground vehicles with an open recall, it appears the amendment will be introduced on the Senate floor.

As we dealers know, many recalls have almost nothing to do with vehicle safety. We have recently seen recalls for items as trivial as a printing error in the owner’s manual. General Motors recalled Camaros because the air bag warning label on the sun visor may peel off.

Senator Thune recognized the logistical issues that go with such a policy when interviewed in the New York Times earlier. Imagine a South Dakota dealer taking an Infiniti or Porsche with an open recall on trade. The dealer would have to load that vehicle on a trailer and haul it to Minneapolis or Omaha. That would not lead to  favorable treatment for a consumer either.

Keep your eye on this issue as well.

ICYMI (In Case You Missed It…)

Subaru dealership employee chastises manufacturers for offering more lucrative car deals through Costco than through their own dealer network.

NHTSA blocks former chief from testifying in a class-action lawsuit against Toyota.

Despite some main stream media reports to the contrary, more than one industry expert says there is no bubble in automobile lending.

And finally…

Obama's overtime plan might impact auto dealers