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Why car loans, mortgages are apples and oranges

Jim Henry is a special correspondent for Automotive News

Using questionable logic, the Consumer Financial Protection Bureau tends to equate mortgage brokers and auto dealers.

The bureau notes that in both cases there's a middleman who contributes to the interest rate a consumer pays. The more the middleman adds, the more profit the middleman makes.

But looking at dealer reserve in isolation doesn't tell the whole story of the typical auto transaction.

In a recent interview Arthur Baines, a Washington-based vice president for Boston consultancy Charles River Associates, whose clients include car lenders and automakers, summed it up very well.

Baines said mortgage brokers are more highly motivated to jack up the interest rate because they don't make money any other way. But dealerships can and do sometimes sell cars at a loss and make up for it in service business, he said.

"Those two transactions might start to look the same if you're a home buyer, and not only is the mortgage broker arranging your financing, he's also buying your existing home. And you're buying your new home from an inventory the mortgage broker maintains. And a year from now when the roof on your new house needs fixing, you call the mortgage broker to fix it," Baines said. "They're very different."

You can reach Jim Henry at autonews@crain.com

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