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Proposed Bill Restricts Post-Sale Changes in Finance Terms

May 15, 2009

WASHINGTON — A legislative proposal heard this week by a U.S. House of Representatives subcommittee directs the Federal Trade Commission (FTC) to issue new rules that would have significant ramifications for the auto finance industry, says the chief federal government affairs official for the American Financial Services Association (AFSA).

The Consumer Credit and Debt Protection Act (H.R.2309) would authorize the FTC to consider adopting rules to restrict post-sale changes in auto financing terms, implement a right to rescission requirement for auto transactions, and limit auto dealer compensation based on “the interest rate, annual percentage rate or the amount financed” in connection with the dealer arranging for financing or the sale of the contract. AFSA submitted testimony on the bill as part of a May 12 hearing held by the House Energy and Commerce Consumer Protection Subcommittee.

“In all likelihood, much of the legislation, as currently drafted, will burden consumers, rather than help them,” said AFSA executive vice president Bill Himpler. For example, a right to rescission requirement could mean a consumer waits for three days before picking up a vehicle to avoid titling issues.

“People may not be happy if they cannot drive home in their new car, especially if they traded in their previous one,” Himpler said.

In its testimony, AFSA pointed out that an overly broad restriction on post-sale changes in financing terms could affect a financial institution’s ability to provide payment schedule modifications or extensions for customers experiencing financial difficulty.

A limitation on dealer compensation “could have the unintended consequence of eliminating the finance and insurance office in the dealership, thus destroying the indirect financing model, which is a major source of financing for consumers,” stated AFSA. The association’s full testimony can be found here.

In addition to directing the FTC to issue auto-related rules, H.R.2309 would give the agency expedited rulemaking authority and the ability to obtain civil penalties in connection with unfair and deceptive acts or practices. A copy of the bill, sponsored by Representative Bobby Rush (D-IL), can be found here.

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