In another sign of government overreach, consumers may see an increase in the cost of auto loans as a result of the so-called “fair lending guidance” adopted by the Consumer Financial Protection Bureau, says David Westcott, chairman of the National Automobile Dealers Association.
In March, the Consumer Financial Protection Bureau released its fair lending guidance that suggests imposing controls on dealer markup and compensation policies to address unexplained pricing disparities.
In remarks made Wednesday to the Automotive Press Association in Detroit, Westcott said the “CFPB is pursuing a policy that could weaken competition in auto lending and result in higher credit costs for millions of consumers … More and more members of Congress are questioning the CFPB’s so-called ‘fair lending guidance’ that seeks to eliminate dealer-negotiated financing and replace it with a flat fee method of compensation, where dealers are not allowed to discount the financing they offer.”
Westcott said pressure from the CFPB to force finance sources into adopting flat fees would eliminate a dealer’s ability to “meet or beat” a given rate, and could increase the cost of credit for millions of consumers.
“When it comes to indirect lending, dealers are ‘price discounters,’ ” he said in a statement. “We don’t understand how removing 17,546 price discounters from the marketplace is a good thing for consumers. And we don’t see how tampering with a $783 billion auto lending market — that’s working effectively and efficiently — is a good thing for consumers either.”
Westcott also highlighted the numerous consumer benefits of the dealer franchise network, which has been the subject of recent debate.
“Competing against other dealers keeps us customer focused — from financing and servicing vehicles to warranty and safety repairs,” Westcott said. “If manufacturers were allowed to squeeze out the independent dealers, the competition we create will give way to a handful of national and international corporations — controlling pricing in your local community — because there will no longer be intra-brand competition.”
Westcott said the consumer is the primary beneficiary of the dealer franchise network, which is why all 50 states have enacted some form of a dealer franchise law.
“The dealer franchise network creates competition, offers convenience, and saves consumers money, while making a complex system seamless for car buyers,” he said.