Congressional Hopeful Is Well Positioned to Cut Deals on Auto Finance

Auto dealers have never had a hard time getting heard in the halls of Congress.

Four years ago, the industry won a one-of-a-kind exemption from the Consumer Financial Protection Bureau's purview. Since then, car dealers have been flexing their muscles on Capitol Hill in an effort to preserve their discretion to tack extra percentage points onto auto loans. Seven current House members have a background in the auto dealer business, which can't hurt the industry's lobbying efforts.

Don Beyer, whose family owns nine dealerships in northern Virginia, is now poised to join those ranks. Beyer is running as a Democrat for an open congressional seat, and in a district where President Obama won 68% of the vote in 2012, he's considered a heavy favorite.

Assuming he's elected on Nov. 4, Beyer could emerge as a key figure in the ongoing fight over consumer protection in the auto finance industry. He told American Banker in a recent interview that he would like to serve on the House Financial Services Committee, and that he hopes to serve as a bridge between the industry and the CFPB.

Because all the other auto dealers in Congress are Republicans, Beyer may be better positioned to negotiate deals.

In the interview, Beyer sought to walk a tightrope — endorsing the goal of stamping out abusive practices in the auto business, while also defending his industry's tarnished reputation and refusing to be pinned down on specific policy positions.

"I really do think that most dealers want true abuses to be eliminated," Beyer said. "I think that the basic idea of the Consumer Financial Protection Bureau — eliminating predatory pricing in consumer practices — we'd agree that that's a good thing to do."

Beyer has earned respect from consumer groups by breaking with many of his fellow auto dealers on what may be the most sensitive issue facing the auto-finance industry — the fact that borrowers with the same credit profile often pay different interest rates, as a result of discretionary interest rate mark-ups by the dealers.

That practice has come under pressure from the CFPB, and Beyer said that his dealerships — which sell Volvos, Kias, Land Rovers, Subarus and Volkswagens — don't use it. Instead, Beyer's stores charge customers a flat fee for arranging financing, one percentage point.

"At that rate, we never have to be embarrassed about it. Never have to feel like, 'OK, this is a young soldier. We can crack off a 3-percent mark-up on him,' " Beyer said.

On the mark-up issue, Beyer, a former Virginia lieutenant governor who later served as U.S. ambassador to Switzerland under President Obama, has adopted a policy that puts him at odds with much of his own industry.

"We've never really figured out a justification for why we should make 3 percentage points on one customer and half a percentage point on another customer," he said, referring to himself and his family members.

Paul Metrey, chief regulatory counsel for the National Automobile Dealers Association, defended discretionary mark-ups, saying in an email: "The dealer's ability to discount its prices to meet or beat competition is very beneficial to consumers as it allows them to save money on financing."

Despite the disagreement, Beyer is hardly casting himself as a consumer protection crusader. Beyer said that he's not convinced that discretionary dealer mark-ups should be outlawed.

"I'm reluctant to say I'd sign onto legislation that would ban discretionary pricing until we actually saw the data and heard all the arguments both ways," said Beyer, whose campaign has collected more than $67,000 from donors in the automotive industry, according to data from the Center for Responsive Politics.

"Generally I'd rather that the market worked, and that we let the market work, if possible, and that we have regulation and law when it's clear that for whatever reason, the market doesn't."

Rather than trying to ban discretionary mark-ups outright, a move that would likely provoke a loud backlash from Capitol Hill, the CFPB has been using its enforcement powers to discourage the fees.

In December, the agency reached a $98 million settlement with Ally Financial after concluding that the average African-American car buyer who received a loan from the company paid $300 more than a similarly situated white buyer.

Critics of the CFPB's approach argue that the agency is unfairly tarring auto dealers and lenders, based solely on statistical analyses that don't show any intent to discriminate.

Beyer, who started in the car business in 1974, treaded carefully when he was asked to weigh in on the consumer agency's approach.

"In my 40 years, there's always been a discretionary mark-up with regard to the interest rate," he said. "So that is the history. And that's not the history of selling a house."

But he added: "I do think that our personal concern in the family business was that what that often gets down to is that the person who is most economically disadvantaged or socially disadvantaged — you know, they're poor, they're military, they're desperate or whatever — ends up paying the higher prices. And so our perspective was, if we priced that way, it would have a disparate impact. So we've chosen not to."

Chris Kukla, a senior counsel at the Center for Responsible Lending, lauded Beyer for his company's flat-fee policy.

"I think there aren't a ton of dealers who are out there doing this, but I think there are a decent number," Kukla said. "The sky won't fall if you do this."

For his part, Beyer is positioning himself as someone who will be able to find compromises that will be acceptable to both the auto-finance industry and the CFPB.

"I know there's a tremendous dealer outcry right now against CFPB regulations. And it'll be really interesting to look and see what exactly people are complaining about and why, and are there sensible ways to fix it?" he said.