The auto finance industry had better start worrying about the Consumer Financial Protection Bureau a lot more than it is.
At a Senate Banking Committee hearing on Tuesday, CFPB Director Richard Cordray made it sound as if dealers routinely double or triple the consumer's buy rate.
That would be news to the nation's auto dealers and lenders. For starters, Cordray knows or certainly ought to know that most lenders cap the amount dealers can add to the buy rate at two or three percentage points. And in practice, the amount is usually less, according to the National Automobile Dealers Association.
At the hearing, Sen. Elizabeth Warren said: "Too often, the dealer gives the consumer a higher interest rate than the financial institution quoted and then pockets the difference." That makes it sound as if the consumer and lender are both in the dark.
Warren quoted a "study" that claims dealers are adding to the cost of auto loans to the tune of "more than $26 billion, straight out of the pockets of working families." Apparently, that's an estimate of every penny in dealer reserve.
Even the CFPB has said repeatedly that dealers deserve to get paid for helping place auto loans. But anybody who expected Cordray to correct Warren's impression would be disappointed.
Instead, he said she "succinctly" expressed the CFPB's concerns.
"If the dealer gets a buy rate of 4 percent that I actually qualify for, they're typically not telling me that. They're simply quoting back some other rate -- 8 or 10 or 14 percent -- and not telling me the buy rate that I qualified for based on my creditworthiness was 4 percent. That's one of a number of concerns we have," Cordray said.
Meanwhile, according to Experian Automotive, the average consumer rate in the second quarter was about 4.5 percent on a new-car loan and 8.6 percent on a used-car loan. On the face of it, it seems pretty unlikely that anybody with a 4 percent buy rate is paying 14 percent, but you wouldn't know that from what Cordray said.
Maybe the sky really is falling.