Why NADA says the CFPB's wrong on reserve

Jim Henry is a special correspondent for Automotive News.

The National Automobile Dealers Association has come up with a catchy way to describe the Consumer Financial Protection Bureau's attack on dealer reserve.

"Why would they want to take 17,000 price discounters out of the market?" NADA President Peter Welch said during an Automotive News editorial board meeting on Tuesday.

Dealer reserve is the amount dealerships add to the lender's buy rate on an auto loan as compensation for having arranged the loan.

But Welch said high competition today drives interest rates down. To get more business, lenders cut buy rates and dealerships cut dealer reserve, he said. That means the nation's 17,000-plus dealerships are price discounters, he said.

The CFPB wants dealerships to take flat fees instead of dealer reserve so that dealerships can't charge legally protected groups, such as minorities, more than other groups, not even accidentally.

Under a flat fee system, Welch said, lenders looking for more business would increase fees paid dealers instead of cutting buy rates. That would put upward pressure on customer costs, Welch said, adding: "There is no free lunch."

You can reach Jim Henry at autonews@autonews.com