So it begins. On April 12, my colleague, Tom Hudson, and I will be making our way to Detroit’s Wayne State University Law School for the first in a series of roundtables organized by the Federal Trade Commission (FTC). Part of a fact-finding mission, the roundtables will help guide the agency as it prepares to assume expedited rulemaking authority with respect to auto dealers.
Dealers were largely excluded from the oversight of the Consumer Financial Protection Bureau, the agency the Dodd-Frank Act created. However, the federal statute also granted the FTC new rulemaking powers as it pertains to dealers. The roundtables, which will explore consumer protection issues related to the sale, financing and leasing of automobiles, will help the agency determine where it should focus its limited resources.
Future sites have yet to be determined, but they will most likely take place in different areas of the country. My partner and I have been invited to join other industry representatives, consumer advocates, regulators and other interested parties in what one FTC staffer described as “a lively discussion” of the issues. Officials with the FTC, by the way, will serve as moderators for these discussions.
I just hope the agency will take a more reasoned approach to these meetings than its press release would indicate. The language used in the FTC’s announcement exposes what may be described as disdain toward the auto industry. Of course, the irony is that the government pretty much owns General Motors, but never mind that.
The FTC’s announcement contains 15 potential topic areas and attendant questions the commission is hoping to answer. Most are targeted at dealers, with a few aimed squarely at the dealer-to-finance-source relationship. And by looking at some of the questions the FTC asks, it’s clear consumer advocates are in control of the conversation. Here are some examples:
The F&I Office: What practices involving motor vehicle dealers raise consumer protection issues? How prevalent are these practices in the industry as a whole or in any subset of the industry?
Spot Deliveries: Do motor vehicle dealers engage in “yo-yo financing?” What types of consumers are impacted by these practices and how? What are the incentives or benefits for dealers engaging in these practices? Is yo-yo financing sometimes combined with a practice whereby the dealer has sold the consumer’s trade-in before the consumer learns of the higher interest and/or payments from the dealer?
Dealer Compensation: Do motor vehicle dealers charge interest rate markups or upfront charges to consumers for credit or leases, and are consumers aware of these charges? Do consumers understand that dealer financing may include dealer markups in addition to the cost of the credit or lease, and to what extent does this practice affect consumers’ decisions to purchase and finance a motor vehicle? Is this an issue unique to the sale and financing of motor vehicles or are there other industries where sellers charge markups of which buyers are unaware and that may be contrary to their interests?
Payment Packing: Do motor vehicle dealers engage in credit or lease packing, such as by including amounts for credit insurance, GAP, or other add-ons into payment amounts or other terms quoted to consumers?
I was taken aback by these questions, but I’m not naïve. I know the FTC is primarily a litigation shop and these questions are consistent with a consumer protection enforcement posture. However, this is a different game. The FTC is soon to be vested with the responsibility to set policy and write regulations for the auto industry. That, in my view, requires a far more objective and reasoned approach than these questions demonstrate.
I’m willing to give the FTC a break. It’s been more than 30 years since it last had this kind of authority, and few, if any, on the staff remember the FTC in the ’70s. But while it may not be fair to expect them to shift gears from enforcement to policy overnight, the bottom line is that the skills they so ably employ in their enforcement activities aren’t generally the skills
that make good policy. For that, you need a more dispassionate fact-finding effort. Fortunately, the folks over there are smart and competent, so I’m sure they’ll find their way.
Michael Benoit is a partner in the Washington, D.C., office of Hudson Cook LLP. He is a frequent speaker and writer on a variety of consumer credit topics. E-mail him at [email protected] Nothing in this article is legal advice and should not be taken as such. Please address all legal questions to your counsel.