Pub. 12 2014-2015 Issue 3

N E W J E R S E Y C O A L I T I O N O F A U T O M O T I V E R E T A I L E R S 7 new jersey auto retailer W W W . N J C A R . O R G NADA Director’s MESSAGE | BY MARCY H. MAGUIRE DIRECTOR’S MESSAGE  continued on page 8 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 misconceptions. 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 buyers would lose virtually all bargaining power and would be stuck paying the full sticker price. And dealer-assisted financing, which is always optional, provides car buyers with competitive 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 (CFPB), without prior notice or public comment, issued ‘guidance’ on indirect auto lending that pressures finance sources to compensate dealers with a f lat fee. The CFPB claims that negotiated 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 supports 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 f lat fee model wouldn’t benef it consumers 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 f lat fee compensation system, dealers’ incentive would shift to choosing lenders that pay them the highest f lat fee which, in turn, would frequently result in higher APRs for consumers. A mandatory f lat fee compensation system also would fail to remove the fair credit risks that a dealer is exposed to when it