The congressional debate on financial reform turned a corner when Senator Reid (D-NV) filed for cloture Monday night, a move that signals the final hours of deliberation of the "Restoring American Financial Stability Act of 2010" (S. 3217). Yet the end result is far from clear. A lot can happen during these hours of debate as senators on both sides of the aisle scramble to push their amendments through at the eleventh hour.
The National Council of La Raza (NCLR) is cautiously optimistic. There is much in the bill to celebrate. For example, it includes the proposed Consumer Financial Protection Bureau (CFPB), which would be dedicated entirely to enforcing consumer protection laws. A CFPB would also keep a pulse on emerging trends of financial abuse.
There are senators, however, working hard to unravel the gains included in the bill. Many of our concerns are concentrated on auto dealers. Some senators are pushing to favor dealers by exempting them from the CFPB's authority, claiming that they are not lenders or they did not cause the market crisis.
- Auto dealers are lenders. They generate the bulk of their profit from the loans they issue. Their kickbacks are generally unregulated. In addition, the nature of this lending has put auto dealers in the number-one slot of Better Business Bureau complaints year after year. Studies indicate that Hispanics and Blacks are often charged as much as double the interest rate on auto loans as their White counterparts.
- Auto dealers contributed to the market crisis. Auto lending is a $350 billion business, second only to mortgage lending in size, but subject to much less oversight and accountability. Finance companies received, packaged, and sold off subprime auto loans, which imploded the market. These loans were arranged and structured by auto dealers. Big auto names such as General Motors and Chrysler then propped up their businesses with taxpayer dollars. General Motors received $50.7 billion in TARP funds and Chrysler accepted $12.8 billion. Arguably, they have significantly contributed to Americans' financial burden.
The dealers seek less accountability, but industry behavior warrants increased oversight. Car loans are an important step in a family's path to financial success. Cars connect parents to better jobs and services and an auto loan can help build a family's credit profile. For many low-income families, their car is their primary asset. Consumers deserve to enter a car lot knowing that the dealership is held to the same rules as the banks and credit unions against whom they compete.
We hope the Senate will stay clear of industry lobbyists and learn from the mortgage industry: no one wins when rules of the road are absent or rendered mere suggestions rather than enforceable laws. It would be irresponsible to wait for a crisis of this magnitude to develop in other parts of our financial system -- auto loans being a prime example -- before enacting the oversight necessary to head disaster off at the pass. With cloture at hand, the iron is hot. We hope that our senators tip the scale toward our families and establish a new era of accountability in the American financial market.