There’s no mistaking that federal regulators are serious about policing auto lenders. The Justice Department’s recent subpoenas to Santander Consumer USA and GM Financial are just the latest blow, preceded by actions against other auto lenders by the Consumer Financial Protection Bureau and Federal Trade Commission.
By extension, auto dealers feel they’ve got a big target on their backs, too.
But who painted that target?
Maybe the auto dealers themselves, suggests Chris Kukla, a senior vice president at the Center for Responsible Lending in Durham, N.C., which has been a persistent critic of auto dealers and lenders.
Kukla’s theory is that federal regulators and their allies in Congress are still angry that when the CFPB was set up, with support from the Obama administration, in 2010, franchised new-car dealerships won a “carve out,” exempting them from the CFPB’s jurisdiction.
“I think it’s driven in part by the auto dealer exclusion,” Kukla told me. “People -- legislators -- would ask us: ‘Why would dealers want to be exempt?’ And we would tell them about the nature of the abuses we’ve seen.”
The Center for Responsible Lending is a strong advocate of doing away with dealer reserve as a method of compensating dealers for acting as middlemen on auto loans. It maintains, as do other critics, that dealers’ discretion in setting the reserve results in minorities and women paying higher interest rates on auto loans than other borrowers.
Sen. Elizabeth Warren, D-Mass., is a critic, too. Before she ran for office, she helped set up the CFPB. In a hearing late last year, Warren characterized the carve out for franchised, new-car dealers as a “loophole” she’d like to see closed.
Buy-here, pay-here dealers were made subject to the CFPB. So, of course, were auto lenders. The CFPB can’t regulate dealers directly, but it has thoroughly shaken dealers up by leaning on lenders to monitor dealerships much more closely.
Meanwhile, there’s no dealer exemption from the FTC or DOJ, as the industry is being forcefully reminded.