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Car lender battles consumer agency

By Tara Baukus Mello ·
Tuesday, February 11, 2014
Posted: 12 pm ET

Auto lender Ally Financial is battling with the Consumer Financial Protection Bureau over its practices for giving out car loans.

During the recent National Automobile Dealers Association Convention in New Orleans, Ally CEO Michael Carpenter told industry magazine Automotive News that he disagreed with what he called the Bureau's "presumptions" that discrimination practices are widespread, expressing that auto dealers should be allowed to charge more for certain factors that the CFPB doesn't currently recognize.

"There's no reason dealer markup shouldn't reflect it when the dealer is taking more credit risk and the dealer does more work," Carpenter told Automotive News. Car dealers sometimes mark up auto loans as well as receive financial incentives from the lenders they work with when they charge higher interest rates on auto loans. The financial incentives are often not disclosed when consumers are in the buying process and obtaining a car loan interest rate at the dealership. As a result of these practices, the CFPB says that these auto lenders may be in violation of fair lending laws. In December, Ally agreed to pay $80 million in damages to consumers harmed by discriminatory practices and $18 million in penalties.

NADA has publicly stated that it is worried the CFPB is abusing its power and says the bureau's work could threaten the availability of affordable auto loans by ending a dealer's ability to meet an interest rate offered by a competitor or offer a lower rate.

At a finance conference held in conjunction with the NADA Convention, Patrice Ficklin, CFPB assistant director, said that the bureau was not suggesting that dealers should not be allowed to be compensated for additional work. "Our experience is that permitting discretion in pricing and tying (dealer) compensation to the exercise of that discretion often significantly increase fair-lending risk," Ficklin said in her speech, according to industry trade publication Ward's Auto.

Karl Brauer, senior director of Insights at Kelley Blue Book, said, "The CFPB should work to eliminate discrimination in the auto financing process, but a thorough analysis of the situation, one that goes beyond the top-line statistics, is necessary to confirm all the factors in play here."

Tara Baukus Mello writes the cars blog as well as the weekly Driving for Dollars column, providing both practical financial advice for consumers as well as insight into the latest developments in the automotive world. Follow her on Facebook here or on Twitter @SheDrives.

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ted shred
February 11, 2014 at 10:02 pm

there's alot of times in order to help credit challenged customers that the only profit area is the finance charge. so when you people who don't understand how it works take away this profit source. then alot of customers won't be helped. i work with ally everyday and they do great things for there customers!

February 11, 2014 at 8:54 pm

Of course a dealer wont disclose it is charging lets say 6% on a car loan they get from lender at 4% & pocket the difference (par). This is why the CFPB is involved and doing a great job in trying to curb this type of rampant consumer abuse, NADA go fly a kite. Another item i feel is out of hand dealers call "Dealer Fee" sometimes $700-800 per car for what?? yep pure mark up no work.

F. Stuart
February 11, 2014 at 7:37 pm

The great liberals of this country believe that most people are so stupid they must be saved from themselves presumably. As a "libertarian conservative", I believe the thing the people of this country must be saved from is the GOVERNMENT intruded upon two parties that want to enter into a contract.

Instead of trying to control every little facet of our lives, why doesn't the government spend time educating people?

F. Wallace
February 11, 2014 at 6:56 pm

Predatory lender companies come in all shapes and sizes...It's purchaser beware...Visit your local credit union for the best deal; at least that is where I have found the best lending deals...

February 11, 2014 at 5:13 pm

Ally Financial, and their overseas operations are a scam. They rape, pillage, and ridicule. They should fade away just like old photographs.

Tim Wonderdog
February 11, 2014 at 4:19 pm

after accepting millions of dollars from taxpayer bailout under TARP. ALLY Financial refused to lease a car to the government for a total of ($14,000) even if it was paid in advance.