By James Kwak
Senator Sam Brownback has been pushing an amendment in the Senate that would exempt auto dealers from regulation by the Consumer Financial Protection Agency. The auto dealer exemption has gotten a lot of press. The House version of the exemption was the focal point of a Huffington Post story back in December on how the House Financial Services Committee was loaded with moderate Democrats who are weak on financial reform. (That amendment was introduced by John Campbell, a former auto dealer who is no longer an auto dealer but who owns real estate that he rents to auto dealers.)
The argument for the exemption is that regulating auto dealers will — you guessed it — reduce access to credit.* The arguments against are: (a) auto loans are a major source of financing for consumers, along with mortgages and credit cards, so people need to be protected; (b) auto loans provide even more opportunities for ripping off customers than most bank loans, because of the auto dealer’s privileged market position and its ability to shift money back and forth between the sale price and the loan fees; and (c) if you open up this loophole, you will have regulatory arbitrage.
Anyway, to support his amendment, this is what Brownback wrote in a letter to the under secretary of defense.
“CNN Money on May 13 reported that ‘Raj Date, executive director of the Cambridge Winter Center for Financial Institutions Policy, agreed that the additional [CFPA] regulation might cause some dealers to stop arranging loans.’”
This is the full passage from the CNN Money story that Brownback cited.
“Raj Date, executive director of the Cambridge Winter Center for Financial Institutions Policy, agreed that the additional regulation might cause some dealers to stop arranging loans.
“‘There will be some dealers who say “If I have to play by an honest set rules, then I can’t be in this business anymore,”‘ Date said. ‘I’m not going to shed any tears for these dealers.’”
Date’s point is that insofar as credit will be less available, it will be less available because dealers won’t be able to screw customers anymore and with stop offering financing. That’s a good thing.
Now, Brownback certainly didn’t write that letter; some staffer of his did. That staffer knew that he was citing Date to support a point that is the opposite of what Date was actually saying, but did it anyway. That’s the kind of thing you do in a college paper, not something you should be doing in Congress.
Of course, it’s possible to make an honest mistake, like if you only read the abstract of a paper and not the whole thing (though it’s still a mistake). But in this case, the staffer only had to read one more sentence. That’s not an honest mistake.
* There is another “argument” for the exception, which is that auto loans didn’t cause the financial crisis. But this is not really an argument, since there is no rule that says that a bill can only be passed if it directly responds to a cause of a crisis that occurred within the past twenty-four months.