CFPB regulations are supposed to do exactly what the name implies: protect the interests of consumers. Auto dealerships have been questioning for some time whether the bureau is successfully doing that, however. In fact, the Consumer Finance Protection Bureau seems to have a history of attempting to control car sales and financing in a way that harms consumers more than helping them. Chief among these is the 2013 CFPB Finance Auto Finance Bulletin which is now on its way to being repealed. More and more dealers, politicians, and consumers are voicing the same question: can CFPB regulations really benefit car buyers, or are they in danger of creating an environment where discounts are fewer and harder to find?
Of course, as things are now, dealerships are engaged in a natural competition that ensures consumers get the best deals on vehicles and financing. Whether a buyer is shopping new car, used car, or BHPH dealerships, the simple fact that dealers must compete to attract customers with all levels of credit ensure buyers will receive discounts and low financing rates. As well, whether a BHPH dealer or a new car dealer, the dealership works to establish a relationship with the buyer and offer the best car credit advice and option they can.
This is true across the auto sales spectrum. In the case of a new car dealership, this takes the form of acting as both liaison and outlet for bank-based car credit financing, helping the consumer to navigate the (often confusing) world of car loans and find the best option. BHPH dealers, on the other hand, assume the risks of the loans themselves, allowing them to offer bad credit car loans that banks cannot. Nonetheless they too advise consumers about their options and help them to navigate the financing process. Either way, dealerships are well aware that if they do not offer the best possible financing, car buyers will seek a better deal at a competitor’s lot.
So where do CFPB regulations come in? In 2013, the CFPB, without offering prior notice or allowing public comment, released guidance attempted to stifle dealer finance. (Indeed, it has been suggested that the attempted institution of CFPB regulations in the form of guidance may have been intended to bypass the rule-making process, which would have required both greater transparency and involvement from other organizations.) Claiming that any and all dealer-assisted finance programs disproportionately affected vehicle costs for certain groups of consumers, and that there is also a high risk of discrimination on the parts of both dealerships and lenders, the CFPB sought to fundamentally change a car buying process that already offers buyers competitive deals and rates. Both allegations were immediately questioned by dealers, as the CFPB regulations provided no public analysis supporting the claims. Furthermore, while the CFPB regulations certainly did appear fashioned to control auto dealers’ financing, it did not seem to address the alleged issue of disproportionate cost increases.
Even the methods used by the CFPB to form conclusions were soon brought into question as well. In November 2014 Charles River Associates, a respected research firm, released a study of the methods utilized in creating the CFPB regulations. Charles River sought to uncover accurate information by taking a detailed look at the CFPB’s methods and reviewing around 8.2 million auto loan records spanning between 2012 and 2013. What they found was staggering, and the study’s writers weren’t shy about expressing it. Charles River called the CFPB regulations: “conceptually flawed and subject to significant bias and estimation error.” Not only was the method of calculating unfair cost increases off, but the research firm also found that the CFPB regulations method for searching out discrimination, the Bayesian method, resulted in a count of African Americans that was off by an incredible 41 percent. It seems impossible that anyone could accurately measure cost increases or potential cases of discrimination using such drastically flawed numbers.
With so many problems in methods, and a suspicious lack of outside input in the creation of guidance, it is no wonder that many dealerships—and others—are questioning the ability of CFPB regulations to do what they should: protect consumers. When a system of competition is already providing car buyers with discounts and loan deals, some have to wonder whether the CFPB’s attempts to control the car sales market, especially while using data that is clearly incorrect, might have a highly detrimental impact of dealers and buyers alike. As the next vote concerned with CFPB policy related to auto finance grows closer, more and more are suspecting that this kind of regulation is far from being in the best interest of American car buyers.