"What do I have to do to get you into this car?"
"How much can you afford to pay every month?"
"My manager's in a good mood."
These are the car salesman cliches everybody knows. Now they're trying to add a couple more to the repertoire:
"When you take out a car loan -- probably the second-biggest financial decision of your life -- you don't need a watchdog looking out for you."
"Watch out ... this will cost you a lot more if somebody's representing your interests."
And if you believe those last two statements, allow me to show you this brand new baby -- it's got whitewalls and mag wheels, tinted windows, I'll throw in the deluxe sports package along with that... oh, and we strongly recommend undercoating.
Fortunately, there's something you can do: You can go to this site, prepared by CREDO and Campaign for America's Future, where a simple one -- or two -- click process will send a fax to Barney Frank and Chris Dodd urging them to protect American consumers from shady auto loans. It's easy to do, it's important -- and, if you act now, it's absolutely free! (Racing stripe and rustproofing not included with fax.)
It's easy to sound flippant, since everybody knows why we all hate car dealers, but the topic is deadly serious: As we've discussed at length, auto dealer lending practices are a disgrace. A massive, multi-year study showed that African Americans are charged more than whites for the same loans. Auto dealers routinely mark up the loans they offer, without disclosing that information to customers -- a practice that costs consumers $20 billion per year and adds an estimated $647 to the cost of each vehicle sold. Auto dealers also play games with "gap insurance" that covers the replacement cost of your vehicle for loan purposes if it's totaled.
Another common car dealer trick is to "sell" a car to a customer by claiming they qualify for a no-interest or low-interest loan, letting them drive away in it, then calling them a week or two later to say the loan fell through. Dealers do this because most customers will have gotten used to the car by then, which means that many of them will accept loan terms that would've been unacceptable at the point of sale.
Car lenders have made a particular point of preying on young soldiers, who are living far from home in great distress. That's why Holly Petraeus, wife of Gen. David Petraeus, is strongly in favor of regulating auto loans. The Petraeus family is hardly known for its left-wing views. Mrs. Petraeus speaks movingly of the harm unscrupulous salespeople have inflicted on our troops.
What are the counterarguments? Car dealers and their allies love to say they should be exempted from financial reform because they weren't part of the financial crisis. But think about it: Why should auto loans be regulated when they're provided by banks and credit unions, but not when they're provided by auto dealers? That's anticompetitive. What's more, we've already seen that auto dealers sometimes encourage applicants to lie when applying for a loan. If bank auto loans are regulated but car dealer loans aren't, unscrupulous bankers will simply use car dealers as willing minions to make an end run around consumer protection. With auto lending a nearly $1 trillion market, the last thing we need is a replay of the "no doc" mortgage scandal with car salesmen playing the part of mortgage brokers.
The defend-car-salesmen crowd has a couple more arguments, and a credulous Associated Press commentary by Rachel Beck summarizes them: First Ms. Beck repeats the assertion that lending legislation would affect dentists who allow patients to pay overtime (the Senate bill does not, and this will undoubtedly be clarified and corrected in conference). Then, she conflates "family dentists" with auto dealers, as if they were both trusted service providers. (It's true that buying a car is as painful as a root canal, but that's as far as the comparison goes.)
That sleight of hand allows her to come up with this:
Just like the dentists, [auto dealer Tony] Federico says that more regulation will boost his costs. It could mean he does fewer loans, or is less generous in the deals he offers. Consumers then would have to seek out loans elsewhere, which could be less convenient and cost more.
"I am always looking out for my customers' best interests, but I also want to do deals that are worthwhile," Federico says.
So, who are you gonna believe -- somebody named "Holly Petraeus," who's concerned about military families, or your trusted family friend Tony Federico? Tony says you'll pay less getting a loan through him, even when he's done taking his market -- and when has a car salesman ever lied? Sure, studies show that he's wrong, but who are you gonna trust here -- the Center for Responsible Lending... or your old pal Tony?
I'm sure Rachel Beck is a very nice person, but her piece is embarrassing to read. Why would newspapers run it? Let's not forget that, like politicians, newspapers rely on car dealer revenue for their bread and butter. (Why, the Sun-Times was even willing to cut a deal with the New York Times this week to run luxury car ads in the Chicago market; luxury ads are especially lucrative.) Ad revenue buys a lot of credulity, especially on the editorial pages.
Hey, maybe everybody's wrong but Tony Federico and Rachel Beck. They're not -- but let's say for argument's sake they are: Why not support this provision anyway? It doesn't prevent auto dealers from handling loans, it simply provides oversight when they do. If the Federicos of the world are really providing better loans at reasonable rates, there's no reason why the Consumer Financial Protection organization won't simply give them an "attaboy" or "attagirl" and tell them to keep up the good work. (Attaboy, Tony!)
Or look at it the other way: If they're not doing anything wrong, why are they so concerned about a little oversight?
Auto dealers throw a lot of lucrative fundraisers back home for DC politicians. That's why 62 House Democrats have joined their Republican colleagues in pushing for an auto dealer exemption. That's the money talking. Talk back to it: Send a fax. Call your Senator and Representative. If you do, we can have you in a nice financial reform package, complete with consumer protections against auto dealer rip offs, probably by this time next week.
Now that's what I call a deal.
Richard (RJ) Eskow, a consultant and writer (and former insurance/finance executive), is a Senior Fellow with the Campaign for America's Future. This post was produced as part of the Curbing Wall Street project. Richard also blogs at A Night Light.
He can be reached at "firstname.lastname@example.org."
Website: Eskow and Associates