A proposal to mandate a single interest rate auto lenders can charge car buyers to ensure minorities weren’t discriminated against would only cause all buyers to pay more for a car, according to the National Automobile Dealers Association.
In a speech at an Automotive Press Association luncheon in Detroit, Forrest McConnell, president of McConnell Honda Acura in Montgomery, Alabama, and chairman of NADA, said the recommendation by the Consumer Financial Protection Bureau (CFPB) to require auto dealers to use a standard interest rate for all financed purchases denies buyers “their right” to a discounted interest rate.
“The government is trying to take away a customer’s right to get a discount,” he said. “The Consumer Financial Protection Bureau, CFPB, is working on statistical anomalies.”
While the CFPB, which was created in 2010 as an oversight body in the wake of the bank-led financial collapse in 2008, doesn’t have any control over auto dealers, it does hold some sway with banks: the institutions providing the loans for car and truck purchases.
The group has investigated several banks for discriminatory lending practices in recent years and has actively advocated a one-rate lending policy for auto loans. The recommendation aims to address concerns about dealers charging minority customers higher loan rates.
Forcing everyone to provide the same interest rate shifts the advantage from buyers to lenders. The lenders willing to pay the highest fees will get a dealer’s business, McConnell noted.
However, he argues that forcing to banks to compete against one another pushes down prices for consumers.
“The current system works because it forces banks to compete and offer dealers low rates to get their business,” McConnell said. “The current system saves customers money.”
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McConnell and the other 17,600 dealers in the U.S. that all seem to support his views on the issue are getting some support from Congress. Rep. Ed Perlmutter, D-Colo., and Marline Stutzman, R-Ind., introduced a bipartisan bill that runs counter to the CFPB’s guidance. McConnell said, 69 Republicans and 40 Democrats support the bill.
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“More people are signing on every day,” he noted.
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However, to deal with the perception that some dealers are discriminating against minorities, NADA developed a plan to deal with the problem: the Fair Credit Compliance Policy and Program.
It requires participating dealers to set a standard interest rate for all buyers, but allows dealers to give a discounted rate as long as they provide the reason for giving the lower rate, such as besting another dealer or reducing inventories.
The problem isn’t the rate charged by banks, it’s the mark-up charged by dealers. When banks stop paying the dealer a cut of a hidden mark-up, the mark-up will disappear. The banks get most of the profit the way things are now and the dealers take most of the heat, which they are used to, so there’s plenty of lobbyists standing by to slow those pesky regulators down.