JIM HENRY

Dealer reserve to come under fire in D.C.

Jim Henry is a special correspondent for Automotive News.Jim Henry is a special correspondent for Automotive News.
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The Center for Responsible Lending and other advocacy groups are hosting a briefing on Capitol Hill Thursday to address what the groups call “auto lending abuses,” the chief one being dealer reserve, also known as dealer markup.

The briefing could turn up the emotional heat in the dispute over dealer reserve. Until now the debate has been testy, but mostly academic. The consumer groups say that during a panel discussion they intend to highlight the “communities disproportionately affected and the financial toll the abuse takes on families.”

Besides the Center for Responsible Lending, the panel is expected to be made up of representatives from the National Council of La Raza, a Hispanic civil rights group; the NAACP and a spokesman for military service members. The panel is expected to meet in the House Transportation Committee room.

Chris Kukla, senior counsel for government affairs for the Center for Responsible Lending in Durham, N.C., said the panel would mostly zero in on dealer discretion in setting dealer reserve. “We want to talk about what the [Consumer Financial Protection Bureau] has been doing in this area and why we think it’s appropriate,” he told Automotive News during a phone interview on Monday.

Dealer reserve is an amount of interest -- usually up to 3 percentage points but in practice often less -- that lenders allow dealerships to add to the buy rate on an auto loan as compensation for setting up the loan. The CFPB says that allowing dealerships to vary the amount of their interest rate profit on loans results in higher interest rates for minorities.

The CFPB wants lenders to switch to flat fees or some other form of compensation in which dealerships don’t have any discretion over the amount. The CFPB is requiring lenders that stick with dealer reserve to more closely monitor loans originated via dealerships to eliminate unexplained variations in dealer reserve.

Unlike a forum hosted by the CFPB last fall, tomorrow’s panel will not include any representatives for dealers or for auto lenders, although they will likely have representatives in the audience, Kukla said, adding “we know there’s a lot of attention on this on Capitol Hill.”

You can reach Jim Henry at autonews@crain.com.

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