Outgoing NADA Chairman Says Flat-Fee Lending Will Quash Competition

The vitality of today’s auto industry was on full display throughout the convention center hallways at the National Automobile Dealers Association meeting in New Orleans this weekend. But all the happy faces didn’t stop the group’s outgoing Chairman David Westcott from beating the continued warning drums over what increased government scrutiny of auto lending could mean for the $783 billion business.

Westcott told participants that NADA will continue to defend in-dealership financing in light of threats to the system posed by Consumer Financial Protection Bureau actions. Westcott also told the group that NADA had developed a new set of specific guidelines to help dealers comply more carefully with fair credit laws. 

Calling a flat-fee dealer compensation system harmful to consumers, Westcott argued that consumers need to be able to see if dealers can meet or beat offers from their banks. He said the action by the government could upend the market. Westcott rallied his troops, saying dealers should continue to engage local representatives in the nation’s capital on the issue.

But he also implored the federal agency to be more forthcoming and transparent with specific allegations and guidance. “If a federal agency is making allegations that discrimination exists in our industry, it should have to explain itself,” Westcott told the group.

 Meanwhile, NADA clearly sees the clouds on the horizon and is making concerted efforts to prep dealers with its own sets of new compliance guidance. The organization sent out a new template on Friday called the “Fair Compliance Program.” The organization will lead a special workshop on the new guidelines Monday.

 During Westcott’s speech, absent naming names, he said a nearly-$100 million fine “on one of our finance partners” was a “strong-armed consent order.”

Westcott told the audience that “CFPB believes the way to fix the problem is to eliminate a customer’s right to negotiate the APR with us,” and that “with that APR comes a fixed amount of compensation.”

But he said it would be consumers who suffer most in a flat-fee system since it would essentially kill ompetition. Westcott said those at the bottom of the credit ladder would be most severely impacted.