Congress considers creating auto dealer watchdog

Consumer groups concerned about financing practices; retailers against added regulations

David Shepardson / Detroit News Washington Bureau

Washington -- A coalition of consumer groups wants a proposed federal watchdog agency to scrutinize the nation's 20,000 auto dealers.

The Obama administration and Democrats in Congress are working to overhaul the nation's financial regulatory system in light of the collapse of major banks last year.

"We strongly urge you to ensure that all activities of auto dealers related to the financing of cars are fully included under the jurisdiction of the (proposed) Consumer Financial Protection Agency," said the letter from about 30 groups, including the Consumer Federation of America, Consumers Union, National Council of La Raza and Public Citizen, released Monday.

"Consumers desperately need federal protection from ubiquitous predatory auto lending practices and multibillion-dollar auto sales frauds," they said.

The letter to Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee, and Rep. Spencer Bachus, R-Ala., the ranking minority member, comes as dealers are urging Congress to exempt them from the new agency's oversight.

On Sept. 22, Frank's discussion draft exempted dealers from some new regulations -- if buyers got their own financing or paid cash. The Obama administration's proposal called for regulating all dealer transactions.

The consumer groups said they "agree that the sale of just a car, where car buyers pay cash or obtain their own financing, should not fall under the supervision of the agency."

The National Automobile Dealers Association said in a letter to Frank last week that Obama's original bill would have "subjected auto dealers to a myriad of new regulations and fees" and would "come when thousands of new car dealers are being forced out of business."

But the NADA said Frank's exemption is too narrowly drawn -- and would still subject dealer financing to regulation. The dealers group notes that auto lending is already regulated by all 50 states, the Federal Reserve Board and Federal Trade Commission. It also takes issue with the consumer groups, saying auto-related complaints were just 1 percent of all FTC complaints last year.

NADA spokesman Bailey Wood said "payment packing, misrepresenting fees, falsifying loan applications, forgery, etc., are already illegal."

But he said that "dealers invest a great deal of time and effort in providing financing for their customers. It is only fair for them to be able to cover their costs and some profit from their efforts."

dshepardson@detnews.com (202) 662-8735