04 August 2011
As referenced in an earlier NACA blog post, we know that young military servicemembers often fall victim to predatory auto loans, many of whom are buying their first car and managing regular paychecks for the first time. The Center for Public Integrity recently released an investigation that found senior military leaders worry that fallout from abusive loans can result in increased stress levels that affect “military readiness” and put security clearances at risk if credit scores are ruined. A new study by the Center for Responsible Lending also shows that many of the same tactics that led to the mortgage crisis like creating incentives for brokers to mark-up the interest rate above what the consumer's credit would qualify for or charging consumers hidden fees continue to plague auto loans.
These problems are so pervasive that it was the focus this week at the Federal Trade Commission (FTC) roundtable in San Antonio, Texas. This is the second auto lending roundtable that the FTC has held this year to gather information on consumers’ experiences with sales and financing at car dealerships. The focus of the first day was specifically regarding military consumers’ financial experiences with auto dealers. It also addressed the role of financial literacy in consumers’ understanding of the auto lending process as well as ending the second day with fair lending issues. NACA members Dwain Alexander, Tom Domonoske, Rosemary Shahan, and Alberto Mesta Jr. were panelists at the FTC event.
The ball is now in FTC’s court to do something to protect consumers against abusive auto lending. Unfortunately, auto dealers were successful in their lobbying efforts to exempt themselves from the authority of the Consumer Financial Protection Bureau (CFPB). While much of the FTC’s authority and power in the area of financial services has been turned over to the CFPB, the FTC is authorized to issue rules with regard to one significant group, auto dealers. Furthermore, under the Dodd-Frank Act, the FTC’s unwieldy and cumbersome Magnuson Moss rulemaking proceedings were substituted with the more streamlined APA informal rulemaking procedures for auto dealers.
We hope that with the information learned about auto lenders’ predatory financing practices and unexpected add-ons at these auto roundtables, the FTC will finally act to issue new strong rules and take tough enforcement against dealers that engage in unfair lending practices against servicemembers and everyday consumers.
Ellen M. Taverna
Legislative Associate, National Association of Consumer Advocates (NACA)