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NADA Still Pushing For CFPB Transparency

July 28, 2015

WASHINGTON — One day after the Consumer Financial Protection Bureau rejected its Freedom of Information Act (FOIA) request to release an internal memo that proves the bureau is breaking from its congressional mandate not to regulate dealers, the National Automobile Dealers Association (NADA) urged member of the U.S. House Financial Services Committee to pass a bill that would repeal the bureau’s auto lending guidance.

House Bill 1737 would repeal the CFPB’s March 2013 bulletin, which warned finance sources that they would be held liable for discriminatory markups on the part of dealers. The legislation would also require that the bureau obtain public input and provide cost impacts before issuing future guidance. It would also require transparency in the process and require the agency to work in consultation with other government agencies that Congress vested with regulatory authority.

Currently, 126 members of the House, which includes 70 Republicans and 56 Democrats, have cosponsored the bill, which was introduced in April by Reps. Frank Guinta (R-N.H.) and Ed Perlmutter (D-Colo.). The legislation is identical to legislation (H.R. 5403) that garnered 149 bipartisan cosponsors in the 113th Congress.

“As a matter of principle, consumers have the right to negotiate, the right to seek a better deal, and the right to choose the loan that’s best for them — but the CFPB has been trying to take that right away,” said NADA President Peter Welch. “Reps. Guinta’s and Perlmutter’s bill will produce a more informed process by requiring the CFPB to study the consumer impact of its policy to eliminate consumer discounts in the showroom, and require public input, transparency and consultation with other affected government agencies.”

The NADA has said the CFPB’s push to get lenders to adopt alternative dealer compensation models, such as flat fees or rate caps, would eliminate the consumers’ ability to negotiate with dealer for lower rates on their auto loans.

Earlier this month, Honda Finance Corp. capped dealer markups at 1.25% above the buy rate for auto loans with terms of five years or less, and 1% for auto loans with longer terms as part of a $24 million settlement with the Department of Justice and the CFPB. The two regulators alleged that it’s dealer markup policies resulted in minorities paying higher rates for auto loans than white consumers.

The NADA filed a FOIA request after American Banker revealed that Honda Finance and two other captives could be facing fines — two weeks before Honda’s captive settled with the CFPB and DOJ. The news source cited an internal CFPB memo that allegedly named the limitation of dealer markup as a goal of the regulator. But the CFPB’s FOIA manager told the NADA that the leaked memo was “privileged” and therefore protected from public scrutiny.

“The CFPB appears to be way outside the swim lane Congress authorized it to swim in, and an increasing number of Democrats and Republicans are justifiably concerned about the agency’s secrecy and its actions,” said Welch in a July 27 statement. "The CFPB's response only suggests that they have even more to hide than first thought.

“Ultimately, both the Reforming CFPB Indirect Auto Financing Guidance Act and NADA's FOIA request are about ensuring government transparency and accountability on behalf of consumers, who simply can't afford to be denied millions of dollars in potential savings without having a say in the matter,”  Welch added.


  1. 1. William V. Fowler [ July 28, 2015 @ 01:04PM ]

    The CFPB argument to justify their actions is based on the dealers ability to establish different rates for different people. However if the dealer had an alternative method for lender selection, therefore rate selection the CFPB's argument would vanished.

    That is one of the reasons I had my company establish another financing Lender decisioning process that allows the dealers to have their compensation controlled by the funding source rather than the dealer. In this manner the dealer could receive a higher compensation for their professional services in a compliant and legal manner.

    If you would like a demonstration of this process just contact me.

    I would be happy to demonstrate the loan decisioning process that eliminates this problem for the dealer and their lenders once and for all.

    The millions the CFPB has fined lenders over this one issue would end with no possibility of recourse by the CFPB.


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