Comments by legal experts at the recent American Financial Services Association and National Automobile Dealers Association meetings in San Francisco indicate the regulatory forecast for dealers is cloudy at best.
Sure, NADA can boast that it got dealers out from under the direct supervision of the new Consumer Finance Protection Bureau. But the federal Dodd-Frank Act that created the bureau also expanded the Federal Trade Commission’s power to regulate car dealerships.
I spoke with Michael Benoit, a Washington, D.C., lawyer specializing in finance and insurance. He’s been in touch with the legal team at the FTC. He’s been told they’re on a fact-finding mission on just what kind of regulation is necessary, and that the folks at the FTC have four top concerns:
1. Spot deliveries. They’re worried dealers are using the practice of delivering cars to customers before their loans are approved as a way to lure customers with a low interest rate only to later say, “Too bad. That rate’s not available after all. You’ll have to go higher.”
2. Dealer participation in the interest-rate profit. They tend to see interest-rate markups and even a percentage fee based on the amount financed as a hidden finance charge.
3. Negative equity. They wonder if letting dealers roll the amount the customer owes on a previous car loan into a new loan just encourages people to get over their heads in debt.
4. GPS devices and starter-interrupt devices that are used on finance customers with very risky credit. Benoit says the FTC is concerned the vehicle might be stopped when the customer is rushing to the hospital in an emergency.
No one knows just what’s in store for dealers in the wake of the Dodd-Frank Act. But more than likely it’ll increase the regulatory burden in the F&I office.