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Just the Facts, Ma’am

After sitting through three roundtables’ worth of tired anecdotes from consumer advocates, the magazine’s legal expert hopes the FTC will keep its word and rely on empirical data before instituting new regulations.

December 2011, F&I and Showroom - Feature

by Michael A. Benoit

The Federal Trade Commission (FTC)’s three-part “listening tour” came to an end in Washington, D.C., on Nov. 17. It took place after the magazine’s editorial deadline, so I encourage you to visit the FTC’s Website to view the video recording and transcript, because the roundtable was shaping up to be a lively discussion.

The agency’s objective was to explore consumer protection issues related to the sale, financing and leasing of motor vehicles. The first event, held in Detroit this past April, focused heavily on dealer compensation, spot deliveries, ancillary products and GPS/starter-interrupt devices. The second, which focused on military issues, took place four months later in San Antonio.

From the outset, Joel Winston, then-associate director of the FTC’s Division of Financial Practices, did his best to discourage participants from using anecdotal information to imply that perceived ills are systemic. Regrettably, the consumer advocates who testified trotted out anecdote after anecdote about consumer harms that no one disagreed were bad.

No one in the industry doubts the veracity of those accounts. The challenge will be identifying and collecting quality empirical data that puts an allegedly prevalent bad practice into the context of the vehicle sales and finance universe. The fact is, no dealer I know would be averse to seeing his unscrupulous brethren punished when appropriate; he just doesn’t want to be demonized for the misdeeds of the bad actors.

Take, for instance, the testimony from the Consumer Financial Protection Bureau (CFPB)’s Holly Petraeus in San Antonio. Petraeus is the wife of CIA Director and retired General David Petraeus, and she heads the CFPB’s Office of Servicemember Affairs. She offered a number of anecdotes about bad things happening to young military personnel, but offered no data to show its prevalence. The thrust of her complaint seemed to be that servicemembers away from home are incapable of looking out for their own interests when purchasing or financing a car.

I posit that young servicemembers are no worse off than their civilian peers. In some respects, they’re actually better off. See, if a base commander is aware of a merchant who is taking advantage of his troops, he or she can declare that merchant off-limits. So Petraeus unwittingly offered the perfect example of a bad practice countered by existing law and not quantified by empirical data.

What is really necessary — and, surprisingly, downplayed by some consumer advocates — is sound financial literacy training. Yes, it costs money, but the CFPB will have access to about $550 million next year. A significant amount of that could fund the creation and nationwide distribution of such a program. Wouldn’t everyone prefer to have educated consumers driving the marketplace, rather than government policy wonks?

The issue for consumer advocates seems to be that financial literacy training wouldn’t help everyone right now. Newsflash: nothing will. One consumer advocate actually told me that poorer consumers “don’t have time” to be educated. So, you’d rather keep your constituents in economic despair than provide and promote tools to make their lives better?

I flatly reject the premise that any consumer doesn’t have time to learn. I’ve been involved in enough financial literacy training efforts to know that’s not true, and I bet many consumer advocates feel the same way. If you make the tools available, even some of the most reluctant consumers will take advantage.

That brings us back to Washington. The third roundtable is supposed to cover leasing issues and offer a recap of what has been learned. I imagine there will be a spirited discussion about the topics addressed at the first two events, and I don’t expect consumer advocates, industry reps or state regulators to change their views.

If the FTC sticks to its stated desire for empirical data, that might not be a bad thing. I feel pretty confident any data will show that, while bad things will happen, they are easily addressed by existing state laws and are in no way pervasive, prevalent or systemic to the extent that federal intervention is needed.

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