The government wants to create another federal regulator, which could affect how the auto sector does business and its customers’ ability to get financing. On Oct. 22, the House Committee on Financial Services voted 39-29 in favor of The Consumer Financial Protection Agency (CFPA) Act of 2009. Dealers, finance companies and consumers need to be aware of the ways they could be harmed if the legislation passes.
For the time being, dealers have been exempted from the CFPA’s oversight, but they could come under it again at any time as part of a Congressional compromise. Even if dealers are fortunate enough to remain excluded from the final bill, they will still feel the CFPA’s adverse effects. Their business partners who provide financing still will be subject to the agency’s stringent and limitless authority to set terms, conditions and disclosures for credit, savings, payment and other financial products and services.
As currently drafted, the House bill would fund the agency in part by imposing fees on lenders, who will have little choice but to pass on increased costs to their customers. Given its proposed mammoth size, the agency’s funding needs could be staggering, and consumers will end up paying higher costs for limited financing choices at a time when many are struggling to make ends meet and are in danger of losing their jobs.
In addition to creating the CFPA, the administration’s regulatory reform proposal would eliminate the industrial loan company (ILC) charter. Companies that own ILCs would be forced to become bank holding companies. However, the proposal does not make clear whether or not commercial entities would be permitted to own bank holding companies.
Some vehicle finance companies currently own ILCs and would be greatly impacted by losing this line of business, as ILCs have been the best capitalized and most profitable banks in the nation. Indeed, eliminating the ILC sector would dry up another important source of financing for dealers and their customers. Let’s remember, ILCs did not contribute to the 2008 financial system collapse and none have failed in 2009.
Creating a vast new bureaucracy with sweeping, unlimited authority and eliminating the ILC charter will cause more harm than good. Everyone – Congress, consumers and industry – has the same goals: easy-to-understand, uniform disclosures and effective consumer protections for financial products and services. We only disagree on how to achieve these objectives. This struggle has already begun in earnest, and the industry needs the auto sector’s help to make the case against this harmful and overreaching proposal.
Act now to make your voice heard. The House is likely to vote on the bill before the end of the year, but the Senate may not act until January. Dealers, finance companies and their customers need to voice their opinions to their representatives before it’s too late and we’re all saddled with new and costly layers of bureaucracy.
Chris Stinebert is president and chief executive officer of the American Financial Services Association in Washington, D.C.