The flat fee misconnect
|Jim Henry is a special correspondent for Automotive News.|
The Consumer Financial Protection Bureau and dealers are talking past each other about flat fees.
The CFPB keeps going out of its way to tell auto lenders and dealers that the CFPB isn't insisting on flat fees.
However, in opposing the CFPB's campaign against dealer reserve, the National Automobile Dealers Association has jumped on flat fees as the CFPB proposal dealers love to hate.
"The problem with flat fees is that right now, the way the system works, with the competition for 17,000 dealers, banks have to have a low rate," said Forrest McConnell, NADA's chairman for 2014. That's how you get dealers' business. That's great for consumers. ... You cannot deny the power competition has."
McConnell said with flat fees, lenders would pay a higher flat fee to get more business instead of a lower rate. "It's very anti-competitive," he said last week at the American Financial Services Association Vehicle Finance Conference in New Orleans.
But in a separate session at the AFSA conference, CFPB Assistant Director Patrice Ficklin said: "Let me be absolutely clear. The bulletin does not require a flat dollar amount for every transaction. ... We believe there may be a variety of alternatives."
Eric Reusch, the bureau's program manager for auto and student loans, has made similar statements at other lender conferences. As one alternative, the CFPB has said it could approve a flat percentage of the amount financed. The point is that the CFPB doesn't want dealers to have discretion over their own compensation.
McConnell said even flat fees won't eliminate dealer discretion unless they're all the same. "If you have flat fees, that doesn't eliminate discretion," he said. "I'll pick the one with a higher fee."
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