Advertisement

Brownback Fires Back At Pentagon In Defense Of Auto Dealer Exemption

This week, the Senate will likely vote on Sen. Sam Brownback’s (R-KS) amendment to Sen. Chris Dodd’s (D-CT) financial regulatory reform legislation, which would exempt auto dealers from regulations set by the proposed Bureau of Consumer Financial Protection. The amendment has some outspoken opponents, including the Obama administration and the Pentagon, which said that having the Bureau police auto lending “will assist us in reducing the concerns [service members] have over their financial well-being.”

Brownback, however, is not backing down, and has fired off a letter to the Department of Defense asking “is it the position of the department that auto dealers pose a specific threat to military readiness?” Brownback also demanded “any records the Pentagon keeps of actual complaints or problems ‘that would document the scope of the threat to readiness.’”

As the Dow Jones Newswire put it, “Brownback’s challenge to the Pentagon is just the latest indication of how intense the auto dealer fight has become.” Indeed, as the New York Times profiled today, “through their lobbying arm, the National Automobile Dealers Association, the dealers have hired a crisis communication team, taken out full-page newspaper advertisements, and organized trips to Washington for dealers…to buttonhole lawmakers and make their case.”

But the Pentagon has already preempted Brownback’s question about military readiness, saying that yes, it does feel that auto dealers ripping off service members has a detrimental effect on troop readiness. As Secretary of the Army John McHugh wrote:

In surveys conducted by the Department of Defense, finances rank among the primary causes of stress for most military Families. As auto loans are often the most significant financial obligations of our soldiers — particularly within the junior enlisted grades — we believe that greater government oversight of auto financing and sales for our Soldiers will help protect them and reduce unnecessary financial strain on our already overburdened Army Families. Soldiers who are distracted by financial issues at home are not fully focused on fighting the enemy, thereby decreasing mission readiness. Protection from unprincipled auto lending enables our Soldiers to concentrate on their primary mission — protecting our great Nation.

The Cambridge Winter Center for Financial Institutions Policy has pointed out that “auto finance is demonstrably susceptible to unfair and deceptive practices” — including mark ups and a host of fees — which are “demonstrably not held in check by private market forces alone.” The National Consumer Law Center has also found that auto financiers routinely charge higher markups on loans to minority borrowers.

Advertisement

According to the Center for Responsible Lending, “consumers spend more than $20 billion a year in excess interest by borrowing through a dealership instead of through a bank or credit union.” But Brownback is still willing to take on the Pentagon and the administration in order to exempt auto dealers from rules that, should financial reform pass, all other financiers will have to follow.