The column about dumping the dealer finance reserve comes across as extremely naive, as does California's effort to eliminate the finance reserve. Something is missing in the entire picture.
The fact is that dealers are purchasing the rates at wholesale. Most banks have their set rates. The amount the dealers pay for that rate is generally less than consumers can get on their own.
Marking up the rate does not constitute an overcharge. It recognizes the wholesale agreement a dealership has with its lenders and earns compensation in return.
Do Stephen Brobeck and California really think that eliminating finance reserves will reflect a lower annual percentage rate to the customer? Well, it won't. Banks will raise their rates in order to compensate dealers.
The beauty of the reserve system is that there is competition while offering the customer a convenience.
If the dealer is not competitive, the consumer is free to compare available rates and terms. Did the lawyers and legislatures forget that?
The concern is competition vs. excess legislation. It would be a pity to allow the government and lawyers to get in the way of business competition and profitability.