Pub. 3 Issue 1

8 www.glancda.org NADA Director’s UPDATE | BY MARCY H. MAGUIRE  NADA Director’s Update — continued on page 9 NADA’s Fair Credit Solution Reduces Dealership Risks It is critical that every dealer work to inform journalists, industry executives, and consumers about how the franchise system works and set the record straight on any misconcep- tions. There’s been a lot of misinformation reported in the news lately about the business model of new car dealerships. The fact of the matter is that the dealer retail network is the most competitive, cost-effective, and pro-consumer model for buying and financing vehicles. Fierce competition between local dealers in any given market drives down prices for car buyers both in and across brands. If a factory owned all of its stores it could set prices and car buy- ers would lose virtually all bargaining power and would be stuck paying the full sticker price. And dealer-assisted financ- ing, which is always optional, provides car buyers with com- petitive rates on auto financing, which are frequently more affordable than what car buyers can get from a bank or credit union. But the federal government is trying to take away the right of car buyers to get discounted rates from dealers. In March 2013, the Consumer Financial Protection Bureau, without prior notice or public comment, issued “guidance” on indirect auto lending that pressures finance sources to com- pensate dealers with a flat fee. The CFPB claims that negoti- ated interest rates between dealers and their customers can create a significant risk of unintentional “disparate impact” discrimination. The National Automobile Dealers Association (NADA) strongly opposes discrimination in any form and fully sup- ports the efforts of the CFPB, the Department of Justice, the Federal Trade Commission, and other federal agencies to eliminate it from the marketplace. However, it is essential that the government address this issue in a way that will effectively address fair credit risks while preserving competition in the marketplace. A government-imposed flat fee model wouldn’t benefit con- sumers because it would eliminate their ability to get a rate discount on their auto financing. Under the current system, dealers have an incentive to select lenders that offer them low wholesale buy rates and dealers frequently have to discount the APRs they offer their customers to earn their business. This dynamic drives down rates for our customers. If the CFPB were to succeed in getting the industry to shift to an across-the-board flat fee compensation system, dealers’ incen- tive would shift to choosing lenders that pay them the high- est flat fee which, in turn, would frequently result in higher APRs for consumers. A mandatory flat fee compensation system also would fail to remove the fair credit risks that a dealer is exposed to when it