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WASHINGTON, D.C. — The National Automobile Dealers Association repeated its petition late Tuesday for its membership to reach out to members of the U.S. Senate. The plea comes as crucial legislation that some argue would significantly impact dealer-assisted financing and more is about to be put to a vote sometime this week, with some expecting the vote to come as early as today. 

To recap, NADA contends the proposed Bureau of Consumer Financial Protection would produce sweeping powers to control dealer-assisted financing and even commissions for store salespeople.

What chairman Ed Tonkin and NADA have thrown their support behind is an amendment by Sen. Sam Brownback, a Republican from Kansas. Brownback's proposal would exempt dealers from the bureau. 

However, the NADA sent out an alert late Tuesday because it believes the Brownback amendment has come under new attack. The association said this time it's from groups representing local banks and credit unions.

Association officials indicated the Independent Community Bankers Association and the Credit Union National Association have publicly opposed the Brownback amendment for the first time.

In response, NADA called upon dealers across the country to make a final push in support of the Brownback amendment.

"Local banks and credit unions are simply trying to cut out their competition so they can corner the market on auto loans," stated David Regan, NADA vice president of legislative affairs.

"Dealer-assisted financing is pro-consumer and pro-competition. Auto dealers can meet or beat the rates offered by banks and credit unions every day because dealer-assisted financing requires lenders to compete for a consumer's business," Regan continued.

The association VP elaborated further about how the amendment not only benefits dealers, but their customers, too.

"With the vote expected within a day, dealers and their employees must take the opportunity to explain to their senators that supporting the Brownback amendment will keep dealer-assisted financing affordable and a viable option for consumers," Regan emphasized.

"While all auto loans — including buy-here, pay-here loans — will remain included in the bill, the Brownback amendment protects consumers' ability to easily find affordable auto financing at their neighborhood auto dealerships," he added.

For more details about this ongoing story, stay tuned to Auto Remarketing and sister publication Subprime Auto Finance News.

More Legal Analysis of the Issue

Tom Hudson offered a unique perspective while attending the ongoing National Buy-Here, Pay-Here Conference in Las Vegas. Hudson is one of the founding partners of the law firm Hudson Cook, a nationwide provider of legal compliance services for the financial industry based in Hanover, Md.

Hudson broke down several points about this potential legislation with an overall mood of caution about whatever bill comes off the Senate floor.

"Trying to write about the financial reform legislation now before Congress is a bit like standing on the side of the railroad tracks trying to paint a moving train," Hudson began.

"Now that the Democrats have decided not to worry about a bipartisan measure, the legislative process has picked up steam and is barreling down the tracks. Some senators are still trying to throw freight into the moving boxcars, while others are trying hard to toss obstacles in the form of amendments in front of the locomotive," he continued.

Hudson moved on to the Brownback amendment the NADA so adamantly supports. Again, the legal expert approached his stance with caution.

"Whether the amendment will succeed is too close to call. I'm betting it won't," Hudson predicted.

"If it doesn't, the Bureau of Consumer Financial Protection will have direct control over dealers' F&I practices," he stated.

"Even if the amendment passes, however, dealers won't be out of the woods because the bureau will still have powers it can exercise over finance companies and banks that could seriously affect dealer F&I practices. That sort of indirect control would be nearly as detrimental to dealers as direct control would be," Hudson went on to say.

The attorney delved further into potential pitfalls by noting how the bureau could operate if it's "being staffed by consumer advocates or by those who have bought into the agenda of the consumer advocates." If that situation occurs, Hudson believes dealers could be in for "rough ride" for several reasons:

—The bureau could redefine the term finance charge to include all ancillary products (GAP, credit insurance, late charges, even service contracts) in the calculation of finance charges. Coupled with Congressional action to cap all consumer credit at a maximum rate of 36 percent, including such charges in the rate calculation could effectively limit the sale of many F&I products.

—Consumer advocates can argue that negative equity is bad for consumers. Hudson said he wouldn't be surprised to see the bureau try to take steps to combat negative equity. Such steps could include prohibiting the financing of negative equity, requiring sizable 20 percent or more) down payments or limiting finance company advances to a percentage of Kelley Blue Book or NADA value.

—Used-vehicle prices could come under attack. Hudson shared an example of a dealer buying a vehicle at auction for $6,000 and selling it to a consumer for $12,000. He asked if that markup would be considered "abusive," or would some part of the markup constitute a "hidden finance charge." He said if the bureau indicates it is, it will be prohibited.

Hudson emphasized after making those points that how dealers conduct their business likely is going to change.

"Whether dealers are excluded from the Senate bill and thus from the final law or not, the bureau will be able to regulate the activities of dealers just by telling finance companies that, for instance, they cannot buy retail installment sales contracts that contain fees, charges, etc. that the bureau has determined are abusive," he explained.

Hudson mentioned that one of his firm partners thinks he's overreacting to this proposed legislation.

"Even if the bureau pushes for these measures, he thinks the courts will curb the bureau's appetite for some of the more drastic measures I've described. He may be right, and I hope he is," Hudson shared.

"If the bureau ends up being run by consumer activist zealots, though, I won't be surprised to see the bureau press for most of these measures," Hudson added.

Additional NADA Background of Legislation Opposition

NADA also offered several other reasons why it's so adamant against dealers being included in creation of the Bureau of Consumer Financial Protection.

—NADA believes auto loans had nothing to do with the economic crisis, and financial reform legislation should focus on what caused the crisis: the big financial institutions of Wall Street.

—The association contends auto finance model is sound, not broken, since vehicle financing is secured by a depreciating asset which lenders must factor into their underwriting. NADA said this forces lenders to look to the borrower for repayment of the loan. Unlike mortgages, the association pointed out that auto finance did not experience a subprime lending crisis and has never posed a systemic risk.

—NADA reiterated that dealers are not lenders; they are facilitators. Association leadership argues that dealers provide optional retail finance services at their dealerships in virtually every community in the country.

"Dealers increase financing competition by providing consumers with a wide variety of options from multiple financing sources. Dealers increase access to credit for consumers. Because of this competition, dealer-assisted financing reduces the cost of credit to consumers," NADA explained.

—The association also noted that access to affordable credit is essential for vehicle buyers since 94 percent of all retail vehicle sales in 2008 were financed.

"Congress should not take any action that could increase the cost of credit to consumers," officials stressed.

—NADA contends that over-regulation would put at risk the efficiency of the current system.

"The fact is, dealer-assisted financing provides affordable options for consumers of all economic levels. And the service is entirely voluntary," the association stated.

"Plus, if consumers are not satisfied with financing at the dealership, they can go elsewhere to refinance, many times at no additional cost," officials added.

—The association noted that according to data from the Federal Trade Commission in 2009, less than 2 percent of consumer complaints were auto related and an even smaller percentage was related to auto finance.