Texas bill to ban 'forced financing' may be out of time

Despite easily clearing the Texas Senate and a House committee, a bill to ban auto dealership "forced financing" in Texas failed to secure a full House vote by the session's end Monday.

Texas Gov. Greg Abbott ordered a special session starting Monday night and said other extensions would be necessary. However, he limited the scope of the first session to property taxes and illegal human smuggling.

Kelvin Bass, legislative aide to bill sponsor state Sen. Royce West, D-Dallas, said Friday, prior to Abbott's announcement, that Senate Bill 1464's journey ended after it failed to pass the House calendar by a May 23 deadline.

"But we did gain allies, found workable language and will likely pursue it again," he wrote in an email. "There was opposition from the auto dealers in the House that may have cost us a few crucial days."

Had the bill become law, Texas might have been the first state to crack down on dealerships refusing or penalizing consumers seeking to pay for vehicles with cash or direct loans. A Texas Senate analysis released in late March found no other state Legislature had prohibited forced financing.

The Texas bill would have prevented an auto dealership from requiring consumers to use financing from the retailer or its partner lenders, transactions that generate finance-and-insurance revenue for the retailer. The bill also would have barred dealerships from charging more to customers who bring cash or outside financing to a deal.

Dealers "may not make a false or misleading representation" related to these conditions either, the bill's language states.

Senators approved the bill in a 26-4 vote April 12. The House Business and Industry Committee voted 9-0 on May 17 to send the bill to the House floor with a favorable review and without any changes.

The Texas Office of Consumer Credit Commissioner received 158 complaints related to forced financing between August 2021 and March 2023, Matthew Nance, deputy general counsel, told the House Business and Industry Committee on May 8.

Texas Automobile Dealers Association CEO of Legislative Affairs Rob Braziel told the House committee the practice arose during the COVID-19 pandemic and inventory constraints. Dealerships had difficulty meeting conditions set by their partner lenders, he said.

Nance, whose office did not take a position on the bill, agreed the issue seemed to be driven by low inventory, but the punitive practice has not fully subsided as inventory returned. An "initial wave" of complaints arose in 2021, he said, and it had slowed to what he estimated was about 30 complaints between September 2022 and March 2023.

"This issue did grow during COVID, but these problems did exist prior to COVID," Suzanne Yashewski, who represented the Texas Credit Union Association, told the House committee. For many years, consumers have found themselves unable to use their credit union for a vehicle purchase, she said.

"The complication is heightened since the COVID times," said Yashewski, regulatory compliance counsel at association parent organization Cornerstone League. She said customers should have the choice of which lender to use.

Braziel said dealerships might have a legitimate reason for rejecting a customer's lender.

"There are folks that our members do not want to deal with in certain situations," he said.

Some lenders are slow to pay dealers the vehicle price borrowed by the consumer or might pose the risk of a "no-pay" scenario, he said.

"We're happy to do business with folks and happy to take cashier's checks and things like that from outside sources," Braziel said.

But he said forcing a dealership to use a particular lender was like telling a merchant they had to accept "every kind of credit card."