WASHINGTON — The Consumer Financial Protection Bureau should have direct oversight of auto dealers instead of being forced to go through indirect auto lenders to make changes to the market, Sen. Elizabeth Warren, D-Mass., suggested Wednesday.
"Right now the car loan market looks increasingly like the pre-crisis housing market, lots of predatory lending, discriminatory practices, increasing repossessions," Warren said during an event sponsored by the financial reform advocacy group Better Markets. "While CFPB has oversight over mortgages and credit cards and checking accounts, it doesn't have complete oversight of the car loan market."
Warren said "we can fix that" and argued that the CFPB should be given "oversight of deceptive car loans."
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The CFPB notched another victory in its effort to limit dealer discretion after Toyota Motor Credit Corp. agreed to cut in half how much partnering dealerships can mark up the interest rate on a loan as compensation.
February 2 -
Honda, Toyota and Nissan's financing arms are poised to agree to limit discretionary pricing for dealers after regulators accused them of allowing partners to mark up loans at higher rates to minorities, according to confidential documents.
June 30 -
The Consumer Financial Protection Bureau has struggled internally with how to end potential discrimination in auto lending, including debating whether it should cite a large lender in the hopes of effectively ending the ability of partnering dealers to mark up loans with all lenders.
September 24 -
While most federal banking regulators use enforcement actions as a way to shape industry practices, the Consumer Financial Protection Bureau is taking that to a whole other level, frequently using orders as a substitute for new rules or guidelines.
February 1
Her remarks came a day after the CFPB and Justice Department forced Toyota Motor Credit Corp. to change how it compensates partnering auto dealers. The deal, which caps how much a dealer can raise an interest rate before charging a customer, is widely seen by industry critics as an end-run around a Dodd-Frank Act provision that explicitly says the agency does not oversee auto dealers.
However, because the CFPB has jurisdiction over auto lenders, it can use its enforcement powers to change how lenders compensate dealers. The agency has now taken actions against Toyota and Honda Finance Corp. to limit so-called dealer discretion.
"The CFPB appears committed to using its enforcement authority to implicitly incent, or explicitly mandate, a significant reduction to dealer markup discretion," Isaac Boltansky, a policy analyst at Compass Point Research & Trading, wrote in a research note.
The American Financial Services Association said in a statement Wednesday that the settlement between Toyota and CFPB represented progress but that "we continue to advocate for a universal, market-based solution to dealer compensation rather than the use of one-off enforcement actions, based on flawed methodologies, to address potential disparate impact."
Jared Allen, a senior director at the National Automobile Dealers Association, also contended that the CFPB already has extensive jurisdiction over the auto industry.
"To the extent they don't is because they haven't finished writing the larger market-participant rule for captive finance companies that Congress mandate that they finish by 2013," he said.
Allen also disputed Warren's claim that the auto loan market is poised to implode like the U.S. mortgage market did leading up to the financial crisis.
"The vast majority of economists, experts and analysts do not agree and there are very substantive reasons why they don't agree, all having to do with the fact that trying to compare auto loans with mortgages is akin to comparing apples with Volkswagens," Allen said.
However, some regulators, including the Office of the Comptroller of the Currency, have warned of "easing standards" in indirect auto lending.
The Center for Responsible Lending also called the settlement between Toyota and the CFPB a win. "Toyota Motor Credit's past practices resulted in thousands of borrowers of color paying higher interest rates than white borrowers."
