The Federal Trade Commission roundtable in San Antonio this month underscores the fact that dealers and auto lenders have plenty to worry about with regard to potential regulation, including attacks on the basic nature of indirect lending itself.
In indirect lending, a lender offers to buy a loan from a dealer at a given wholesale rate; critics don't like that the dealer in effect marks it up to a retail rate and shares in the profits.
At public-comment sessions with the FTC, groups like the Center for Responsible Lending keep zeroing in on the fact that dealers can set the final interest rate on an auto loan. That can result in customers paying different rates, even if they're identical in every other respect in terms of risk, said Chris Kukla, senior counsel for government affairs for the CRL.
Responded NADA general counsel Andy Koblenz: "That's not unfair lending."
Kukla and Koblenz had what U.N. diplomats might call a "full and frank exchange of ideas" in a San Antonio panel discussion.
"Let's be very clear," Koblenz said. "There is nothing that says discretionary pricing in any segment of the marketplace is unfair." He complained that the CRL has told consumers the money that dealers make on indirect lending is an "overcharge."
Kukla said the CRL is OK with dealers being compensated for arranging loans. However, he said, most consumers don't realize the interest rate is negotiable or that dealers make money off the interest rate.
Koblenz said separately that the FTC is in "listening mode." He said the FTC could opt for more regulation or it could decide to do nothing.
Whichever way it goes, you're going to hear this argument again and again.