Oversight exemption for auto dealers gaining traction
Wednesday, June 23, 2010
Lawmakers were on the brink Tuesday of exempting the nation's 18,000 auto dealers from oversight by a new consumer financial watchdog aimed at protecting borrowers from abusive lenders.
Depending on the final language, the move could mark a major victory for industry lobbyists and a blow to President Obama, Democratic leaders, consumer advocates and Pentagon officials, who have long opposed such a loophole.
Rep. Barney Frank (D-Mass.), chairman of the House-Senate conference committee finalizing details of new financial regulations, reiterated his opposition to the auto-dealer exemption but proposed including it in the final bill, acknowledging the widespread support for it in the House last fall. "I consider myself bound by the House," he said.
Although Senate negotiators largely agreed on the carve-out later in the day, the issue wasn't settled. Senate banking committee Chairman Christopher J. Dodd (D-Conn.), who also opposed the exemption but acknowledged that the Senate had overwhelmingly passed a nonbinding directive in favor of excluding auto dealers, offered a compromise that could subject dealers to the watchdog's rules.
Under Dodd's proposal, auto dealers would technically be exempt from the new Bureau of Consumer Financial Protection. However, the bureau would have the power to write new truth-in-lending rules that could apply to auto dealers. The Federal Reserve could ignore those rules but would have to explain its rationale. In addition, the Federal Trade Commission would have the authority to adopt aggressive new rules governing dealer-assisted financing.
"It's an effort to strike a bargain, a compromise here," Dodd said. House negotiators had yet to agree to it Tuesday evening.
Final details remained unsettled, though it seemed nearly certain that auto dealers would escape direct supervision by the new consumer bureau. Firms that provide direct auto financing such as GMAC, however, would still fall under its watch.
Despite the apparent setback on the auto-dealer exemption, the Obama administration and consumer advocates secured a victory Tuesday that once looked uncertain. House and Senate negotiators solidified the shape of the new consumer protection regulator, which has long been a cornerstone of the administration's proposed financial overhaul.
The new watchdog will operate as a bureau within the Federal Reserve, rather than as a stand-alone agency. But it will retain almost total autonomy, including independent funding, a presidentially appointed head and broad authority to write and enforce rules.
On Tuesday, auto dealers were happy with the prospect of escaping regulation but remained wary of the Senate proposal.
"We've definitely made strides forward in the process, but the fight is far from over," said Bailey Wood, spokesman for the National Automobile Dealers Association. "We have concerns with what the Senate is trying to do. . . . The unintended consequences of this action would make it more expensive and more difficult for car buyers to find affordable auto financing."
For months, auto dealers have lobbied fervently to escape the consumer watchdog's reach, saying existing regulators have power to crack down on abusive practices and arguing that they did not cause the financial crisis.