O’Connor: Turkey of a bill ‘reforms’ car loans

Brian J. O'Connor
Detroit News Finance Editor

Welcome back from Thanksgiving break, and I hope you had a good one. I also hope you guys passed on the entrée known as “turducken,” a Cajun dish involving a turkey wrapped around a duck wrapped around a chicken, with three different stuffings. We tried it in the Funny Money household and, while anything involving roasted poultry, stuffing and gravy will be good, it was more of a “meh-ducken.”

But that wasn’t nearly as stomach-churning as the rancid bird the U.S. House of Representatives served American car buyers one day before the holiday recess in the form of the “Reforming CFPB Indirect Auto Financing Guidance Act.” The name makes perfect sense when you understand that “reform” translates as, “protect ongoing consumer rip-offs by the people who give us millions of dollars each election cycle.”

The approved bill is a repulsive layering of racism wrapped in consumer rip-offs wrapped in a layer of lies and stuffed with lots and lots of campaign cash. That makes it a “discrim-steal-payoff” or, as car-buyers who are victimized will find, a “you’re-out-of-luck-en.”

A hefty serving of racism

This particularly putrid piece of poultry would let lenders and dealers ignore federal rules that bar them from charging the least-savvy borrowers hundreds of dollars more in excessive interest on car loans, even when those borrowers have credit just as good as others paying less. This happens when a lender sets a minimum interest rate on car loan made through a dealer, and the dealer hikes the interest rate — by up to 2.5 percentage points — with the lender kicking back some of the bonus to the dealer.

History shows that these loan mark-ups hit minorities much more often than other borrowers. In December 2013, Ally Bank paid $98 million to settle charges from the federal Consumer Financial Protection Bureau and the Department of Justice that 235,000 loans made in just one year racially discriminated by overcharging 235,000 minority borrowers.

That came after a similar $24 million settlement with Honda’s auto lending arm and an $18 million settlement with Fifth Third Bancorp. According to the National Consumer Law Center, in the past two years the Finance Bureau and Justice Department have collected $176 million in fines and restitution to consumers who paid too much interest for car loans.

Served with a fine whine

There’s an easy fix, which is for lenders and dealers to monitor their lending to make sure people of equal credit get equal loans or, even better, for the banks to offer dealers another incentive to make their loans, such as a flat fee. In fact, the Finance Bureau issued just such guidance in March 2013.

Instead of following that guidance, dealers whined that it would keep them from offering consumers “discounts” on their loans. But getting “discounts” was exactly what white borrowers got before — while African-Americans, Hispanics and Pacific Islanders all paid more. All lenders would have to do is raise their base rate for all borrowers, then allow dealers to offer “discounts” that end up favoring some select groups of borrowers.

That the folks making money off this scam don’t want to give it up isn’t surprising. And it’s not surprising that every Republican in the House voted in favor of this “reform.” What is surprising is that 88 Democrats went along, including Democratic National Committee Chairwoman Debbie Wasserman Schultz, D-Florida. The measure got a no vote from only two Michigan Democratic representatives — Sander Levin and John Conyers Jr. — while it got a shameless thumbs-up from Dan Kildee, Brenda Lawrence and Debbie Dingell.

Since Congress won’t help you, be sure to shop for your financing before you shop for a car. Check banks and credit unions (which offer car loans as low as 1.99 percent), get pre-approved and, with that in hand, head to a dealer. Get the best deal you can on a car, then discuss your financing. If the dealer can beat your best loan rate, fine.

Unfortunately, this “reform” for the Finance Bureau comes backed by bi-partisan money-grubbing, so it’s likely to be included in a big must-pass year-end spending bill in order to get through the Senate and sidestep a presidential veto, along with who-knows-what other anti-consumer swindles will be added to get similar legal protection. If this “reform” that stinks like last-year’s giblets is what Congress served us for Thanksgiving, just imagine what will be shoved down our chimneys for Christmas.


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