JIM HENRY

Auto loans and mortgages? Apples and oranges

Jim Henry is a special correspondent for Automotive News

The auto finance industry and the Consumer Financial Protection Bureau have a fundamental disconnect.

The auto finance industry sees itself as unique while the CFPB sees it as just one more consumer finance sector, essentially not that different from mortgages, credit cards or student loans.

Last year, after issuing a bulletin equating dealership compensation based on dealer reserve with discrimination, CFPB Director Richard Cordray said there were "similar issues" in the mortgage market, where the CFPB had outlawed a form of middleman markup.

Attorneys for the National Automobile Dealers Association object to comparisons between auto dealers and mortgage brokers. For one thing, mortgage brokers either make money on the mortgage or don't make any money. So a mortgage broker is a lot more motivated to hike the customer's interest rate, in NADA's view.

If anything, NADA says, a car dealer is likely to lower the customer's rate to make the sale, knowing he can still make money on the customer's service business. That argument and others, though, have made little or no impression on the CFPB, which continues to try to eliminate dealer reserve.

In the credit card sector, the CFPB reached big, expensive settlements with credit card issuers in 2012 for marketing that exaggerated the benefits and minimized the cost of add-on products such as credit monitoring.

Last year, the CFPB applied similar language in a consent order policing the marketing of extended service contracts and guaranteed asset protection, or GAP, policies. GAP pays the difference between what a customer owes on his or her car and the insurance settlement if the car is totaled or stolen.

Meanwhile, the CFPB keeps turning up the heat on the mortgage business.

In February, the CFPB unveiled proposed rules changes that would require mortgage lenders to report the interest rate, total origination charges and total discount points of every loan -- on top of the length of the loan, total points and fees, the length of any teaser or introductory interest rates, and the applicant's or borrower's age and credit score.

The auto finance industry can argue that auto loans and mortgages are apples and oranges, but if the CFPB doesn't see it that way, it wouldn't be the first time.

You may e-mail Jim Henry at autonews@crain.com.

You can reach Jim Henry at autonews@crain.com

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