Credit union scraps ad campaign slamming rate markup

UPDATED: 7/17/14 5:09 pm ET - corrected

Editor's note: An earlier version of this story misidentified the U.S. government agency involved with a 2013 consent order with Ally Financial and the Consumer Financial Protection Bureau.

A Florida credit union is canceling an advertising and social media campaign that hit at a retail industry sore spot -- dealer reserve.

The “Expose the Truth” campaign was scheduled to run through August and described dealer reserve as an unfair trade practice most consumers don’t know about.

The campaign prominently cited a consent order among Ally Financial, the Consumer Financial Protection Bureau and the U.S. Department of Justice.

Space Coast Credit Union of Melbourne, Fla., kicked off the campaign late last month with ads showing a blindfolded credit union member and the message: “Only 21 percent know the truth. Do you?” A later ad shows the same individual with the blindfold removed and the message: “I know the truth about rate markups.”

The “truth,” according to the credit union, is that lenders approve a loan at the lender’s buy rate and then “bump” the interest rate “for no good reason.” The credit union cites the Center for Responsible Lending, a longtime critic of the auto finance industry, in saying the “average” rate markup is 2.5 percentage points.

According to the credit union’s 2013 annual report, it had 57 branch locations and originated $563 million in auto loans in 2013, up from $474 million in 2012.

‘Discredited arguments’

Predictably, the National Automobile Dealers Association disliked the campaign. NADA has said repeatedly that the average dealer reserve is well below the commonly applied rate caps of 2 or 3 percentage points and is often less than 1 percentage point. NADA also insists that the lender’s buy rate is not intended to be the customer’s retail rate.

“The SCCU campaign is nothing more than a rehash by another competitor of previously discredited arguments,” NADA said in a written statement on Tuesday.

“The truth is that dealer-assisted financing offers consumers great value and competitive advantages, allowing car buyers to save billions of dollars each year. And the proof is in the numbers -- although dealer-assisted financing is always optional, more than 80 percent of consumers choose it to finance their vehicles because of the value it provides.”

The dealer association said it encourages comparison shopping, including all finance sources, and in its statement plugged an industry-sponsored consumer education Web site,

The credit union, in a statement, said the campaign was “misinterpreted” as a criticism of dealers.

“Our aim is to help our members make informed financing decisions," the lender said. "The campaign was not about auto dealers or the people selling vehicles, though recent automotive media coverage has been misinterpreted that way."

Capital letters

The credit union campaign featured the late-2013 consent order among Ally, the CFPB and the Justice Department, with a graphic that says in all capital letters: “Nation’s largest auto lender fined by government!”

Ally paid $98 million, including $80 million in restitution to minority car buyers, who, according to the CFPB, paid higher rates for dealer reserve. Ally paid even though it denied it had discriminated and denied that it tolerates discrimination by its dealers.

However, the credit union graphic makes no mention of the discrimination charges. It only says Ally was “ordered by U.S. government agencies to pay back $80 million to victims of rate markups.”

Said NADA: “It is unfortunate to see this type of misguided advice being given to consumers.”

The full Space Coast ad

You can reach Jim Henry at

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