Car dealers take victory lap, but will face tougher FTC

Introduction

Car dealers are close to winning their battle to avoid oversight by a new federal consumer financial protection bureau but elation over the victory may be tempered by Democrats’ plan to give more rulemaking horsepower to their current regulator, the Federal Trade Commission.

Barney Frank, chairman of the conference committee, said language proposed by House negotiators would give the FTC “enhanced powers” to act more quickly on consumer complaints about auto loan practices. Auto dealers have lobbied furiously for weeks to win exemption from tougher regulation in a wide-ranging financial reform bill being finalized by a Senate and House conference committee.

“The votes are not there to give the consumer protection bureau any role in this,” said Frank, a Massachusetts Democrat. “We are not increasing the authority the FTC has,” but the proposal would instead “expedite the ability of the FTC to act in responding to the concerns we heard from the Pentagon and others that ought to be addressed.” One of the flashpoints in the debate over federal regulation of car dealers is a large volume of complaints that car dealers clustered around military bases have mistreated active-duty service members.

Likewise, the Federal Reserve will continue to have jurisdiction over auto dealers’ loans when it comes to enforcing federal “truth-in-lending” laws.

House Republican negotiators opposed language giving the FTC expedited rule-making authority.

Spencer Bachus of Alabama, the top Republican on the House Financial Services Committee, said any form of tighter regulation for auto dealers would hurt “an industry that has had a desperate two or three years.” Another Republican, Scott Garrett of New Jersey, said that car dealers are family-run, small businesses that don’t belong in a financial reform bill aimed at addressing Wall Street misbehavior. “There’s a lot of stuff in this bill that has absolutely nothing to do with the crisis,” he said.

Car dealers arrange the financing for what for many Americans is their largest or second-largest financial obligation, writing more than $250 billion in consumer loans each year. In a story published Tuesday, the Center for Public Integrity reported on 20 former car dealership insiders from around the country who describe a culture in which forged documents, hidden fees and other questionable practices were tools of the trade in auto financing.

Democrats in both the House and the Senate were intent on giving the FTC more latitude with consumer protection regulations. The FTC has been hamstrung by an existing law, the Magnuson-Moss Act, that can force the agency to take up to eight years to enact new regulations — a much longer period of time than most other federal agencies.

Auto dealers say that abuses in the industry are not common. Dealer-assisted financing is optional for car buyers, and it gives consumers more choices, according to the National Automotive Dealers Association. “NADA is pleased that the House conferees have again voted to remove Main Street auto dealers from the Wall Street reform bill,” NADA spokesman Bailey Wood said. However, he added that “we have concerns with giving the Federal Trade Commission sweeping new powers. This is an agency that has been reined in by Congress on numerous occasions and has a repetitive pattern of abusing its authority.”

Senate and House negotiators on the reform bill hoped to finish work on a final version of the legislation this week.