The one obstacle that could hamper the return of the auto finance market moved one step closer to becoming reality after the Senate Banking Committee voted yesterday to approve Senator Christopher Dodd’s (D-Conn.) new finance reform bill.
Negotiations over the bill are expected to continue after the committee’s 13-10 vote. The auto industry, which is expected to boost lobbying efforts against the legislation, is strongly opposed to the bill’s proposed creation of a consumer division under the Federal Reverse.
“Finance companies account for approximately 50 percent of non-mortgage consumer credit,” Chris Stinebert, president and CEO of the American Financial Services Association, said after Dodd introduced his bill last week. “Much of this activity is likely to be curtailed if these lenders are subject to a new, untested consumer protection bureau whose rulemaking authority is vast but largely undefined.”
Also opposed is the National Automobile Dealers Association, which is doing all it can to remind Congress that auto lending wasn’t the cause of the financial crisis. The NADA is also opposed to the new bureau and is concerned that the legislation could repeal safeguards created years ago (e.g., Magnuson-Moss Act and the FTC Improvements Act of 1980) to prevent the Federal Trade Commission from overstepping its rulemaking authority.
“The NADA is concerned that the removal of these well-established safeguards would reestablish a less rigorous regulatory procedure for the FTC and give the agency free rein to conduct fishing expeditions in any area of automotive retailing it perceives as ‘unfair,’” said David Regan, the NADA’s vice president of legislative affairs.
Last week, Dodd said his legislation would protect against future crises by giving the Federal Reserve the power to regulate the biggest players in the financial system, create a new consumer protection agency in the Fed, and end government bailout for firms considered too big to fail.
Dodd’s bill, however, is far less sweeping than the one he introduced in November 2008. The legislative package will not create an independent consumer protection agency as first proposed. Instead, the consumer division the bill intends to create within the Federal Reserve Board could have proposals overridden by a proposed systemic council. That council will be tasked with identifying unsafe products and practices that could threaten the country’s economic stability.
The bill does, however, allow the consumer division to write rules for banks and non-banks. It also provides the division with enforcement powers over banks with more than $10 millions in assets, as well as mortgage-related companies and large nonbanks.
Additionally, the original Dodd bill would have taken away the Fed’s bank supervisory responsibility and created a single regulatory body for all banks. The new version does not.
The bill would also remove the Fed’s oversight of holding companies and state banks with less than $50 billion in assets. However, it would keep its authority to oversee all large financial holding companies.
The original bill also would have created a Financial Institutions Regulation Administration. The new bill aims to eliminate the Office of Thrift Supervision and merge its responsibilities with the Office of the Comptroller of the Currency.
Before the introduction of his bill, Dodd had worked with Senator Bob Corker (R-Tenn.) for weeks to close differences with Republicans over key provisions in the legislation. With those differences unsettled, the lawmaker decided to go forward with a new bill without support of the Republicans.
Republicans want to weaken the bill, eliminate the CFPA, remove the regulator’s ability to oversee too-big-to-fail institutions and weaken accounting rules. Democrats want to strengthen the bill and have prepared a dozen or so amendments, including one that would create a truly independent Consumer Financial Protection Agency.
“We are one step closer to passing real financial reform that will bring oversight and accountability to our financial systems,” Obama said yesterday in a statement. He also vowed to fight efforts to weaken the legislation as it moves forward.