Sep 25, 2013 Philip Burgess
The financial crisis affected the automotive industry substantially, leading to one of the biggest government bailouts in the history of the United States and what was once believed to be the most challenging battle for those operating in the sector. Now, the economy is resurgent, and the automotive industry is beginning to fight back to levels not seen since well before the Great Recession, especially when it comes to financing new and used car purchases.
Improvements in the unemployment situation and housing market have directly led to an increased demand for new and used cars among U.S. consumers. As the economy continues to stabilize, more individuals are becoming comfortable signing on for new loans and leases, thus presenting dealerships and auto loan providers with a unique opportunity to capitalize in the coming years.
CFPB speaks out
Automotive News recently reported that the Consumer Financial Protection Bureau (CFPB) has been causing some problems for auto lenders in the past several years, while advocacy groups such as the National Automobile Dealers Association are starting to fight back. The main point of contention seems to be the dealer reserve, which is the discretionary amount financiers can increase interest rates when arranging loans for potential car buyers.
However, the news provider explained that many in the industry are beginning to question the methods the CFPB has used to push dealers to keep this reserve as low as possible. The federal regulator has become so aggressive that it is now calling for a complete overhaul of the current interest and arrangement processes to create flat fees that eliminate dealer reserve.
Dealers, for good reason, are starting to see this as a potentially serious hindrance to the ways in which they have successfully conducted business since the economic fallout. There is no doubt that the CFPB should be regulating unlawful or immoral deal reserve practices, such as those that are discriminatory to certain socio-economic classes or races, but this call for action may be a bit broader than may be necessary.
"The CFPB is saying what it expects on its website, in a manual, in its guides - and in a sense that's great," Michael Mallow, a partner at a Los Angeles-based law firm, told Automotive News. "Companies know what's expected. They can comply or at least risk-assess more knowledgeably. The downside is that the excuse 'we weren't sure what you wanted' is not viable."
Care needed to avoid another issue
Leaders in the automotive lending and dealership industries have stated that the methods are the real problem, not the goals. Protecting consumers, as well as lenders, from completely illegal practices among certain dealers is a must, but this does not seem like a viable way to accomplish enforcement.
Whichever way the government decides to go with this matter, officials should ensure that they are not stopping the flow of improvements in the sector. Auto industry loans are finally beginning to make headway, which is an indication of a resurgent economy, and regulators should be careful to not stand in the way of this growth.