Banks Pushed by Regulators Send ‘Nastygrams’ to Car Dealers
Automobile dealers who three years ago won an exemption from direct oversight by the U.S. Consumer Financial Protection Bureau have found that it still has a lot of clout over how they finance car sales.
Under pressure from the agency, large banks that routinely buy auto loans have been reviewing records to ensure the dealers they work with aren’t discriminating against customers on the basis of race or gender. When firms including Bank of America Corp. find evidence of possible unfair treatment, they are sending warning letters to the dealers.
The situation is a turnabout from the industry’s lobbying victory in 2010, when it won a carve-out in the Dodd-Frank financial regulatory law from the consumer bureau’s authority.
Dealers are learning a “painful lesson,” said Richard Hunt, head of the Consumer Bankers Association, which represents large institutions. “If you provide a financial product to consumers, you will be under the oversight of the CFPB -- one way or another.”
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The vehicle loan market, measured by outstanding volume of lending, was $751 billion at the end of June, according to Experian Plc. (EXPN) Of that, 58 percent came from banks and credit unions, with another 28 percent from finance companies controlled by car manufacturers. The major banks involved in auto finance, which besides Bank of America include Wells Fargo & Co. (WFC), JPMorgan Chase & Co. (JPM) and Ally Financial Inc. (ALLY), are examined directly by the consumer bureau.
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The guidance takes aim at a practice the agency refers to as “dealer mark-up” and auto dealers call “dealer-assisted financing” or “dealer reserve.” Under the system, banks function as indirect lenders, allowing dealers to add points to the interest rate and pocket the difference. The consumer bureau said that one way for lenders to comply with guidance would be to pay flat fees to dealers instead of varying interest rates.
http://www.bloomberg.com/news/2013-10-18/banks-pushed-by-regulators-send-nastygrams-to-car-dealers.html
The article is long, and it discusses the structure of the auto lending industry and a number of unscrupulous dealer practices.
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