Really, CFPB? Indirect Auto Loans?Is That All You Got? | Aite ...

In my 20 or so years in banking, I have seen consumers impacted by horrible, unfair, life-altering events, such as job or home loss or the inability to get health insurance coverage because (wait for it) a consumer could get really sick. Other examples include vicious credit collectors/agencies/law firms, mortgage and HELOC fraud, predatory teaser and adjustable interest rates, automobile title lenders and payday lenders from whom consumers cannot escape, roofing and aluminum siding salesmen pushing loans on the elderly, and on and on. Where I have seen institutions do a credible job of walking the line between lending money and paying for channel delivery services and new customers while allowing the dealer to recover some costs for facilitating the loan has been in indirect automobile finance.

Today, the Consumer Financial Protection Bureau (CFPB) is supposed to protect consumers from the financial services industry in ways that the Federal Trade Commission (FTC) was unable to do. And where do they plan to focus? On ?discriminatory car loans,? says a recent American Banker article ? loans that are purportedly a really big problem. I would argue that this ?problem? is one that most consumers/taxpayers who ?fund the CFPB couldn?t care less about ? a ?problem? that some states, the FTC, and yes, even financial institutions, have worked to purge from the industry. CFPB, if you are going to neglect to regulate or wreak enforcement havoc on the National Association of Securities Dealers and the Securities and Exchange Commission for their failure to protect consumers? 401(k) investments ? particularly since the government forces those funds into the stock market, where many consumers recently lost up to 40% of their retirement savings ? it is painful to see time, effort, and, yes, taxpayer money being wasted on investigating banks (banks that do not see the customer) for discrimination and for adding a minimal servicing fee to car loan interest rates.

I have yet to see the government force any consumer to invest their funds in a car or a loan. Most consumers who go to an auto dealership, find a car they like, and negotiate the purchase are adult consumers more than capable of making adult decisions. The reasons behind financing an auto are obvious. Consumers can get their own loan from any number of sources, or the dealer can help them arrange financing. That many consumers choose dealer-arranged financing is not surprising. Dealer-arranged financing is CONVENIENT.

Busy consumers choose to pay for convenience every day. In this case, they pay to avoid taking time during business hours to go to one or more lender(s) to apply, sign papers, get their check, etc. Balanced against this real waste of time is the half hour it generally takes for the person to get the car when the dealership facilitates the loan. And guess what, CFPB? Consumers are sometimes willingly pay an additional US$150 to US$200 fee to a dealer that supplies ?runners? who head to the state registry with insurance, sales tax, and registration paperwork. So why would they balk at 50 to 300 basis points over the life of the loan? After all, most mortgage brokers take 50 basis points on a mortgage loan and get that paid up front.

The dealer works for the money. For contacting several lenders; getting the loan approved; reviewing bank-generated compliance documents, including contracts, with the consumer; collecting signature(s); and delivering loan paperwork to the lender, a dealer receives a percentage of the interest rate (along with a promise of payment for the car, after which it often waits a month or two for funding). Someone told me once that for the consumer, the difference between an auto dealer and an aluminum siding salesman is freedom of choice. Consumers go to auto dealers, second-mortgage salesman come to consumers? homes. Maybe, CFPB, you might embrace this bit of practicality when choosing your battles.

Source: http://aitegroupblog.com/banking-payments/really-cfpb-indirect-auto-loans-is-that-all-you-got/

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