American auto dealers were dealt a winning hand yesterday as the U.S. House of Representatives agreed to exclude auto loans from an upcoming consumer protection bill. A competing bill from the Senate has similar language, and the two are now being reconciled in conference committee.
The consumer protection bill came about as a reaction to predatory and poorly regulated lending practices by Wall Street financial institutions. Given widespread reports of shady auto loans being foisted on new- and used-car buyers -- particularly military personnel -- Congress had initially included auto lenders in the bill.
Consumer groups and the Obama administration argue that only across-the-board financial reform will ensure that consumers are protected on all fronts. Dealers have pushed back, pointing out that their financing arms are already subject to regulation by state and federal agencies. A number of elected officials -- primarily Republicans, but a handful of Democrats, too -- have also objected, arguing that Wall Street, not auto lenders, are the real problem.
Where things stand
As of today, the consumer protection bill sits in a conference committee headed by Representative Barney Frank (D-MA). The House bill contains an exemption for auto lenders, and as Bengt Halvorson reported last month, the Senate bill contains similar language. However, on the Senate side there's now a move to give the new consumer protection bureau some say-so in regulations passed by the Federal Reserve Board, and to allow the Federal Trade Commission to enact stricter rules, too. Should that pass, the new bureau wouldn't be able to write new regulations of its own, but it could encourage and shape those put forward by other agencies.
But no matter how auto lenders are handled in this piece of legislation, the consumer protection bill has passed. The Obama administration has said that it is disappointed that auto lenders aren't included, but has also added that the omission isn't a deal-breaker.
The truth of the matter
The American economy is a curious thing. On the one hand, our country has prided itself on laissez-faire economics, letting individuals and corporations run as they please and allowing consumers to determine if businesses sink or swim. On the other hand, some industries have proven that they need to be reined in, that they have to be regulated to ensure the health, safety, and general welfare of the public.
If all consumers were created equal, if all were well-educated and read the fine print, the U.S. could likely make do with far less regulation than exists today. Unfortunately, the public doesn't always know (or care) what it's getting into when it signs on the dotted line, and thanks to corporate greed, socio-economic disparities, and troubled educational systems, that's not likely to change anytime soon.
Some argue that there are already plenty of state and federal regulations on the books for auto lenders -- they're simply not enforced. But that raises the question: should we leave consumers in the hands of 50 separate state agencies, or should we risk creating a new one to streamline the process? Given the size of the auto loan market -- $850 billion -- it merits some serious thought.