Nonprofit says dealers should make finance profit -- but not too much

Donna Harris covers automotive retailing for Automotive News
Earlier this week I told you how the nonprofit Center for Responsible Lending is lobbying against dealers' interest rate markups at the federal and state levels.

I had a chat with Chris Kukla, its senior lawyer, and he says the center is not out to eliminate the dealer's finance profit. The folks at the center just don't like interest rate markups because they believe there's too much room for abuse.

They also view a markup as a hidden fee. I mentioned to Kukla that the industry adopted voluntary disclosures -- that the dealer may profit from auto financing and that interest rates are negotiable.

But Kukla insists that those disclosures don't go far enough. He says a dealer's profit should be disclosed in detail, and the disclosure should be mandatory.

Kukla says the lender should pay dealers a flat fee, and the amount should be reasonable. He suggests either a flat dollar amount or a percentage of the amount financed.

He's vague about the amount he considers reasonable. But in our discussion he said that a fee of $700 to $800 was too much.

There are lenders that pay flat fees equal to 3 percent of the amount financed. With the typical price of a new vehicle at about $26,000, it wouldn't take long to bump up against that ceiling.