A Hot Mess on Fair Lending for Auto Finance

DETROIT – When you hear the word “abusive” used so many times within the context of auto finance, it jolts you to attention.

And that was my reaction as I sat on a panel yesterday during a day-long symposium here on “The Road Ahead” for auto finance regulation sponsored by the Federal Trade Commission.

“Abusive” was the word John Van Alst, an attorney at the National Consumer Law Center, used over and over during our panel. He was countered by Thomas B. Hudson, partner, Hudson Cook LLP, and Thomas A. Moore Jr., president and CEO of First Investors Financial Services, who argued that practices in auto finance are sound and fair. Essentially, the debate came down to how much do consumers understand about the auto financing process and to what degree are dealers giving borrowers a raw deal. 

A deep lack of understanding pervades this debate, and FTC officials will admit — both publicly and privately — that they do not yet know enough about auto finance to determine whether additional regulations are needed. Industry officials maintain that the vast majority of auto finance transactions are wholesome and that the overwhelming number of consumers have full understanding of the financing transaction to which they are committing. Meanwhile, consumer advocates like Van Alst and Chris Kukla, senior counsel for government affairs at the Center for Responsible Lending and another co-panelist, claim the exact opposite. Kukla, for example, cites studies that suggest the vast percentage of consumers do not understand their financial deals. (Preliminary data from our study on the matter suggests otherwise.) 

To be sure, the FTC will act based on which side is correct — although I suspect that the FTC will never be able to fully parse out which side is “right.” In some ways, the roundtable yesterday was good. It allowed Moore, Hudson and others from the industry to speak out, and to directly counter some of the “abuse” claims of advocates. A one-sided “debate” would have been much worse for auto finance, of that I am certain.