Financial Reform Conference: Auto Dealers Beat Obama, Win Exemption From Consumer Protection Agency
WASHINGTON (AP) -- In the end, the political clout of 18,000 auto dealers scattered nationwide was too much even for President Barack Obama.
House and Senate negotiators putting final shape to a sweeping overhaul of Wall Street regulations all but agreed Tuesday to exclude auto dealers from the oversight of a consumer financial protection bureau.
"The political reality is that those of us who have fought against an auto dealer carve-out can't prevail," Representative Luis Gutierrez, D-Ill.
The House bill approved last December contained an exemption for auto dealers, among others, from lending regulations issued by the proposed consumer agency. The Senate did not, but the sentiment was there. In a 60-30 nonbinding vote last month, senators called for the auto dealer loophole.
Under a compromise offered by Senate Democrats Tuesday, auto dealers would still be covered by federal truth-in-lending rules that would have to conform to regulations adopted by the consumer agency.
The Federal Reserve, which oversees truth-in-lending regulations, could adopt different rules but would have to explain its decision. At the same time, the Federal Trade Commission would be given authority to write new rules for auto dealers under accelerated procedures.
But the bottom line would be that auto dealers would be exempt from direct supervision by the consumer financial protection bureau. The exclusion would not apply to auto dealers that provide their own financing, such as Carmax, or to giant auto lender GMAC.
The Senate compromise, if accepted by House negotiators, would be one of President Barack Obama's most high profile losses in his efforts to overhaul Wall Street regulations. The main contours of the House and Senate bills generally match the administration's goals, but Obama has personally lobbied against efforts to carve auto dealers out of the consumer agency's jurisdiction.
The administration has even made a national security case, arguing that military personnel have been especially prone to predatory lending schemes by car dealers.
Auto dealers have used their high visibility in their local communities to fight inclusion in the bill. They say they only process the loans and then turn them over to other lending institutions to administer and service.
The National Auto Dealers Association continued to press for the House exclusion, objecting to the Senate proposal's requirement that the Fed's truth-in-lending rules hew to those issued by the consumer agency and that the FTC be given the authority to write auto dealer rules on a fast track.
The discussion on excluding auto dealers is one of many negotiations under way in a joint House-Senate panel that is working out differences between the House and Senate bills.
Panel members must still iron out some of the most difficult differences, including how to regulate the complex securities known as derivatives and how far to go in restricting the investment activities of banks.
On Tuesday, Rep. Barney Frank, the joint committee chairman, and Senate Banking Committee Chairman Christopher Dodd prodded the panel to conclude its work by Thursday in time for Obama's appearance before the Group of 20 nations in Toronto this weekend.
"It would be a grave error for the U.S. to do things where we could be gamed by other countries," Frank, D-Mass., said.
Treasury Secretary Timothy Geithner made a similar point while testifying before the Congressional Oversight Panel, an independent committee established to look over Treasury's financial rescue fund. Geithner stressed the need for the United States to shape a consensus on international financial regulations.
"The reforms Congress is about to enact will be a good model for the world and will give us enormous credibility in trying to, again, pull the world to those higher standards," he said.