Dealers and lenders have said they are united in opposing the Consumer Financial Protection Bureau's proposed changes to the indirect lending model, but they could be moving out of sync.
In an Oct. 16 speech in Detroit, David Westcott, chairman of the National Automobile Dealers Association, said the CFPB "seeks to eliminate dealer-negotiated financing and replace it with a flat-fee method of compensation, where dealers are not allowed to discount the financing they offer."
But that same day, in back-to-back appearances at the Auto Finance Summit for lenders in Las Vegas, a key CFPB official and a panel representing auto lenders struck a note of cooperation.
"It's a long-term relationship," said Linda Iannone, chief compliance officer for Toyota Financial Services. "They're not going away. We're not going away. We need to find a way to coexist."
The CFPB contends dealer discretion in setting dealer reserve can lead to a "disparate impact," or higher rates, for legally protected borrowers such as minorities and women. NADA counters that switching to flat fees likely would raise rates instead of lowering them. It also says its members don't condone discrimination.
Last week in Las Vegas, the CFPB's Eric Reusch insisted the bureau isn't out to eliminate dealer compensation or to force lenders to switch to flat fees.
Reusch, the program manager for auto and student loans, told the audience via conference call that lenders have options, including sticking with dealer reserve, with proper monitoring; switching to flat fees; or devising a solution in between.
For instance, instead of a one-size-fits-all flat fee per contract, he said, lenders could come up with a formula to pay dealers more for contracts that are worth more to the lender without allowing dealerships to set the customer's final rate.
"How you do it is up to you," Reusch said.