Don't forget those two valuable pieces of advice at the used-car lot; you'll still need them as it looks like shady lenders won't need to duck for cover after all.
Today, by a vote of 60 to 30, the Senate voted to exclude auto dealers from the financial regulatory overhaul bill, which will create a new government agency to protect consumers from predatory lending.
The House version of the bill, which was passed in December, included an exemption for dealers, but until today it wasn't clear whether the Senate version would include such language. The Senate's vote in favor of the exemption isn't binding, but it does instruct committee members to leave dealers out of the new rules and new oversight.
Main Street businesses paying for Wall Street's greed?
In all fairness, the vast majority of used-car dealers are hard-working (to add a dash of politician-speak) Main Street businesspeople who aren't tied to Wall Street. And thanks to partnerships, dealers can sometimes get you a slightly better monthly payment than you would be able to find at an ordinary bank or credit union.
Dealers, and lobbyists for various extensions of the auto industry—including the influential National Automobile Dealers Association—have been arguing that dealers were not the cause of the financial crisis.
Sam Brownback, the Senator who launched the effort to exempt auto dealers from the bill, argued that while sellers won't be regulated directly, the lenders who provide the loans still will be by the new bill.
"There's not a single auto dealer on Wall Street," Brownback argued.
"Auto dealer-lenders" make up 80 percent of U.S. auto loans. However the NADA points out that "Buy-Here-Pay-Here" dealers and lenders are already regulated by the Bureau of Consumer Financial Protection.
The ugly truth: lucrative dealer kickbacks, swindling military service members
But Senator Chris Dodd, a proponent of having the bill regulate dealers, argued that if they aren't reeled in, such practices as dealer kickbacks for high-interest loans will continue. Along with low-income customers, military service members are frequent targets of these tactics, and top Pentagon officials had been recently petitioning Senators to not leave dealers exempt.
Those kickbacks, which are a significant source of income for many used-car dealers especially, can lead salespeople to steer customers toward high-interest, high-fee loan options that aren't necessarily in the buyer's best interest.
The plans are intended to get buyers to the dealerships
Credit unions and community banks had also strongly opposed exempting dealers, as well as most major consumer-watchdog organizations. Last week, Consumers Union, the publisher of Consumer Reports, applauded the lack of a loophole in the Senate version. “These loans should be scrutinized like other financial products, and Congress shouldn't water down financial reform to protect those that offer them,” said senior policy counsel Pamela Banks.
In all likelihood, had the bill passed, the result would have meant that options for new-car shoppers would continue relatively unchanged, while used-car shoppers would have had access to fewer finance options. Sales would have suffered, and some lower-income shoppers might have had more trouble finding reliable transportation.
Reeling in the abusers...without punishing everyone else
Is that a good thing or not? For savvy shoppers who read all the fine print and shop smartly, having a full slate of choices is how it should be. And yes, leaving hard-hit auto dealers out of an immediate lending crackdown is a smart economic move. But what else can we do to reel in those who abuse customers' trust, abuse the system, and take advantage of loopholes and predatory lending on the car lot?
Somewhere, tonight, you can bet a salesman who works the used car lot is celebrating with an extra mai tai.