But, with the recent exemption of all used car dealers from the Consumer Financial Protection Bureau oversight legislation as part of the Restoring American Financial Stability Act of 2010, our federal lawmakers have legitimized this type of behavior.
The regulations would have attempted to put an end to abusive and deceptive loan practices used car dealers engage in. The oversight might have even forced used car dealers to disclose the fair value of the vehicle to consumers and financial intuitions like mortgage underwriters have to. Also, the regulations may have forced used car dealers to disclose defects and the history of a vehicle in plain language.
After mortgages, auto finance is the second-biggest area of lending in the U.S., with roughly $850 billion in outstanding balances. That’s bigger than the credit card industry.
“Auto lenders” used by dealers make up about 80 percent of the U.S. auto-loan industry. While dealerships can sometimes get consumers a slightly better deal in terms of interest rates than banks or credit unions, the kickbacks and add-ons to loans often lead salespeople to steer customers towards confusing loans with high fees that aren’t in the buyers’ best interest.
Currently, used car dealers face oversight by the FTC and other government agencies. But, that hasn’t stopped used car dealers from engaging in a range of dubious financing practices. Loopholes in federal law, such as the Truth in Lending Act, also exempt dealers from lending standards.
Even officials at the Pentagon were especially vocal about adding more oversight, as members of the military and military families are frequently targeted by sketchy financing schemes that simply wouldn’t exist with more regulation.
Compared to the stereotype of the grease monkey car mechanic, nothing compares to the image of the used car salesman. The stereotypical used car salesman is a slime ball with a fake tan who is a fast-talker and is constantly saying “What is it going to take to get you in this car” and “How much can you afford a month?”
It is an image that in most cases is rightly deserved and sometimes embraced by the “auto remarketing” industry when you consider the Better Business Bureau and state regulatory authorities get more complaints about auto dealers than any other industry, including auto repair, according to the National Consumer Law Center.
It still amazes me that our elected officials ignored the stereotypes and the crimes against consumers used car dealers commit. The political lobby for the dealers (which spent more than $500,000 in the first quarter of 2010) convinced members of the legislative branch that additional oversight of the auto industry could raise the price of vehicles and hurt that industry’s rebound. It is even scarier to think these same lobbyists are trying to influence Right to Repair legislation.
In the end, it is business as usual for shops. We will still continue to see customers with vehicles they paid too much for and financed for way too long. Unfortunately, this financial burden will continue to impact repair decisions in the latter part of the used vehicle’s loan. But, we will continue to fix them because shops take care of their customers.