Heads-up: U.S. is playing adviser on car loans

Jim Henry is a special correspondent for Automotive News.

F&I managers ought to take a look at the Consumer Financial Protection Bureau's new "Ask CFPB" Web site.

On the site, under the section "auto loans," the CFPB encourages consumers to ask dealerships for the buy rate on their loan. It then recommends that consumers offer to pay dealerships the buy rate plus a flat fee rather than pay an interest rate that is above the buy rate.

The CFPB doesn't say how much a flat fee should be. But it says customers "qualify" for their loan at the buy rate, and it suggests that consumers shouldn't pay much beyond that.

The new Web site is part of a consumer education effort announced by the CFPB today. One piece of advice F&I managers probably won't mind is that the bureau encourages consumers to shop around and see who offers the best deal on a loan -- a bank, a credit union or a dealership.

The CFPB site appears to be neutral. However, it's hard to avoid the impression that the bureau presents a skeptical view of indirect loans negotiated at dealerships and a somewhat less critical view of direct loans negotiated someplace else.

For instance, here are the CFPB's definition of "buy rate" and its tips for negotiating a loan:

"A buy rate is the interest rate that a lender quotes to your dealer when you seek a loan directly through the dealer. Your dealer may offer you a rate that is higher than the buy rate. The rate the dealer offers you is called the 'contract rate.' Sometimes the lender pays the dealer a fee that is based on the difference between these two rates, which can give the dealer an incentive to charge you a higher interest rate than you qualify for.

"TIP: Ask the dealer what the buy rate is and offer to pay the buy rate plus a flat fee, rather than paying an interest rate that is above the buy rate. This could save you thousands of dollars over the life of the loan.

"TIP: The dealer may offer you a higher interest rate than you can get directly from a bank or credit union. Shop around to find out who offers the best interest rate."

No doubt F&I managers will be quick to point out to customers that indirect loans at the dealership can often undercut the rates on direct-to-consumer loans.

There's also more to getting the best overall deal than the lowest interest rate, such as the value of a trade-in; the size of the down payment; manufacturer incentives that are exclusive to a captive finance company; the convenience and efficiency of having multiple lenders bid for the dealership's business; etc. etc.

But it's only a matter of time before some consumers start showing up at dealerships with a CFPB printout, demanding a loan at the buy rate and not a cent more.

F&I managers will handle it like they handle other challenges. Still, consider this a heads-up.

You can reach Jim Henry at autonews@crain.com

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