A car buyer, usually with an iffy credit history, comes into the dealership, trades in a car, reaches what he thinks is an agreement on loan terms, and drives away in his new car. What the happy car buyer probably doesn't realize was that among the many papers he signed was one acknowledging that the deal was contingent upon a third-party lender approving the financing. A few days or weeks later — if the dealer hasn't found a willing lender — the buyer gets a call summoning him back to the dealer to negotiate a new loan or return the car.
Many consumers will agree to tougher loan terms to avoid embarrassment after showing off the new car to their friends.
According to a USA Today report, consumer advocates say unscrupulous dealers prey disproportionately on young, financially unsophisticated soldiers, which is why the secretaries of the Army and the Air Force have come out publicly in favor of subjecting auto dealers to consumer financial regulation.
Congress on Thursday began working on a final version of sweeping financial reform legislation that could subject auto dealerships to regulation by a new consumer financial protection agency. If the measure survives, dealers' F&I (finance and insurance) staff would be regulated like bankers and mortgage brokers.
The powerful auto dealers' lobby is fighting back. Auto dealers last year persuaded the House of Representatives to exempt them from regulation by the new consumer financial protection agency. But the Senate version of the reform bill would let the new agency crack down on abusive auto-lending practices at dealerships. Now, envoys from the House and Senate are trying to work out differences between their two versions. And the lobbying has resumed in earnest, USA Today reports.
