A bill in the Alabama House of Representatives would require auto dealers to disclose to consumers the amount of compensation the dealer receives from the financial institution that funds the loan. House Bill 10, filed by Republican Rep. Becky Nordgren at the end of September, was assigned to the Financial Services Committee for review on Feb. 4, 2020, according to Alabama Legislature records.
Automobile Dealers Association of Alabama, for one, is opposed to the bill, President Tom Dart told Auto Finance News. “There’s no other state in the United States that has such a law on its books — at least that we’ve been able to identify,” he said.
Dart and “several dealers” are scheduled to meet with Rep. Nordgren on Oct. 10, though they haven’t yet had time to come up with alternatives. “[Our hope is] to try to explain why we think this bill will actually harm consumers rather than help them, and hopefully be able to educate her on how the system really works,” he said.
Dart cited a 1977 study conducted by the Federal Reserve Board that found that transparency on dealer finance charges actually confused consumers. “Sometimes consumers would choose a loan with a lower markup, but the actual loan would cost more,” Dart said. “They get the markup rate confused with the APR.”
Another issue, Dart pointed out, was that the most people don’t realize that the rate lenders quote to dealers are not rates typically offered to consumers. “The thought is that the consumer could walk into a bank and get the exact same buy rate as the dealer, and that’s typically not true,” he said. Rep. Nordgren’s office was unavailable for comment by press time.
A similar bill that would require dealers to disclose markup rates to consumers — and cap those markups — was introduced in Maryland back in April, but was killed by the Maryland Senate Financial Committee.
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