Auto-title lending is the only significant auto-related area of the financial industry that's targeted for tighter regulation under the bill. These loans, like payday lending schemes, are often made under terms that make it almost impossible to pay off the loan, often leading the customer to lose their collateral—in this case, their vehicle, which can suddenly make their situation much worse.
According to the Wall Street Journal, at least six states have moved to regulate auto title loans since 2007. Wisconsin is making them illegal later this year; Virginia is more closely regulating them beginning in October; Illinois is capping them at $4,000; and others have regulated the interest rate that can be charged.
Auto lending: Status quo is good enough?
And beyond that, there's little else related to auto lending that's going to be overseen by the Consumer Financial Protection Bureau, the new federal agency that will watch over mortgages, credit cars, personal loans, and every other type of consumer lending.
Although your car loan might be a loan through the same bank or lending institution, it won't be overseen by that agency, leaving spotty coverage through individual states and the Federal Trade Commission (FTC).
Much of that is due to the focused efforts of the National Automobile Dealers Association (NADA), which opposed the new regulation and had been lobbying aggressively in the weeks leading up to the House vote late last month. The NADA successfully argued that any additional regulation might put a dent in sales, and with all the difficulties in the industry already, now is not the time to do it.
Of those who sell auto loans in the U.S., 80 percent are "auto dealer-lenders." Dealers can sometimes get those with good credit a slightly better deal on a loan than the shopper would be able to get on their own, but low-income buyers or those with low credit scores might be steered toward risky loans that provide kickbacks to the dealership.
Low-income shoppers, military remain targets
Members of the military, as well as many high-ranking officials at the Pentagon—along with the Obama administration and most consumer-advocacy groups—favored the additional oversight over auto loans, as military families and members of the military, along with low-income shoppers, are often targeted by financing schemes that exist because of regulation loopholes or a lack of direct oversight.
Auto industry spent record $70.3m lobbying Congress
The Yo-Yo. This is when a customer gets called back to the dealership, told their 'approved' financing fell through, then forced a higher-interest loan.
The Markup. The dealership actually marks up the interest rate of the loan, based on how much you'll pay, and likely gets a higher kickback for doing it.
The Add-On. A dealer will either add another item, such as an extended warranty or window etching, in hopes that you don't notice it, or try to convince you that it's necessary to get a particular discount or loan rate.
For more information, check out Lieber's post. And ask your Congressional representatives how they voted and how they're going to help make sure there's a little more insight.