05/26/2010 03:03 pm ET Updated May 25, 2011

No E-ZPass for Auto Dealers

While the angry eyes of the public and the media have been trained on possible crimes and misdemeanors at Goldman Sachs, on wild loans made by mortgage companies, and on usurious rates charged by credit card companies, the group that makes more loans to more people than almost any other and that produces the most consumer complaints--auto dealers--have been overlooked. Why? Some hard, bright numbers have blinded many of our politicians: dealers lavished more in campaign contributions during 2008 than the automakers and airlines combined and have already spent $3 million on lobbying this year, according to the Center for Responsive Politics.

When the president and a brave few like Rhode Island's Jack Reed and Massachusetts' Scott Brown helped ensure auto dealers were included in the Senate's version of the financial reform bill, it looked like dealers might not get their E-ZPass--even though the House version had exempted them. But the industry exerted a full court press, resulting in Monday's 60-30 vote urging Senators working on the bill's reconciliation to include the dealer exemption.

So auto dealers may indeed get a pass despite outstanding car loans totaling $850 billion, greater than national credit card debt and second only to home mortgages. They may get a pass despite shady lending practices on many of America's car lots. And they may get a pass despite their contribution to the financial crisis, of which they portray themselves as simply a victim.

Dealers require stricter regulation and enforcement. Too many car buyers are victims of fraudulent practices that go under colorful names such as "power-booking" (reporting that a buyer has purchased non-existent options to get a larger loan amount), "yo-yo financing" (allowing the buyer to take a vehicle home before financing is finalized, then calling with a pretext to renegotiate on less favorable terms), and "loan packing" (charging the buyer for add-ons--such as rust proofing or extended warranties--not revealed earlier). In another scam, dealers accept a debt-laden car in trade-in, promising to pay off the loan. They then fail to do so, leaving their customer with two payments, one for a car they no longer possess. These practices take place not just on oily buy-here pay-here used car lots but in reputable-looking new car showrooms.

At the same time, the industry contributed lawfully but meaningfully to the nation's financial meltdown. Car loans were securitized in risky ways just as home mortgages were. Like the mortgage industry, dealers pushed credit and pricey products on those who couldn't afford them. Offers of 'zero interest and no money down' boosted the average amount financed for a new car to $25,000. To keep monthly payments low, loan terms were extended from an average of three or four years in the early 1990s to five and even six years. Longer term loans mean that today the majority of owners find themselves 'upside down' when they sell or trade in, owing more than their car is worth.

Significantly, dealers also encouraged buyers to pay for cars with home equity loans, as fully a third of California car buyers recently did. Across the country, this choice left many with no cushion when home values dropped. Some have lost jobs and had their credit scores scorched only because a dealer defrauded them and then repossessed the wheels that got them to work.

Consumers have long wanted protection from car dealers, who top the list of Better Business Bureau complaints. Others may have come to accept that this is the way things are and caveat emptor. But if we can hold Lloyd Blankfein accountable for bilking his investors, we can hold accountable the dealer who swindles his buyers. Better protections will enable the fifty million Americans who buy a car each year to hold onto their vehicles and still educate their children or retire. It will allow honest car dealers to profit more than crooked ones.

While too many of our Congressmen have been listening to their donors and wine-and-diners, others free of dealer influence are speaking out on behalf of their constituents with less clout. Military leaders, like Secretary of the Army John McHugh, have expressed concerns about the dealer exemption--too many soldiers fall prey to unscrupulous dealers.

If we achieve real new protections for America's car buyers, though, the story of how has a larger band of heroes: the women and men of the consumer movement. Under the umbrella of the Consumer Federation of America, activists have been working to get dealers included in the bill and to get protections for the most vulnerable: the young, minorities, and women who are the most frequent targets of unfair practices. The consumer movement, tens of millions strong, knows that it is in the world of credit-and therefore in the automotive world- that the consumer has been left too unprotected for too long. These are the voices we must heed.

Catherine Lutz, an anthropologist at the Watson Institute at Brown University, and Anne Lutz Fernandez, a former marketer and banker, are the authors of Carjacked: The Culture of the Automobile and its Effect on our Lives (Palgrave Macmillan).