Sen. Elizabeth Warren, D-Massachusetts, is planning to hit the brakes on car dealers' financing practices with new legislation which would regulate their actions in granting auto loans.
But, in doing so, Warren is picking a fight with the powerful auto finance industry, Republicans, and many in her own party who recoil at the idea of granting government regulators even more power over the economy,
The Hill notes.
When Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010 in response to the economic recession of 2008, it specifically exempted auto dealers from control by the Consumer Financial Protection Bureau (CFPB), established to oversee banks.
Now Warren, who claims that consumers lose $26 billion a year through auto dealers' financing markups, wants to place auto financiers under regulation of the CFPB.
Her proposal, which opponents say is based on faulty figures, flies directly in the face of House legislation introduced in April by Rep. Frank Guinta, R-New Hampshire, which would block CFPB regulations aimed at controlling the auto finance industry, The Hill said.
Her opponents could have seen this coming.
In a speech last month before the
Levy Institute, comparing the auto loan situation with the shaky subprime home loan market that helped set off the 2008 recession, Warren said: "Right now, the auto loan market looks increasingly like the pre-crisis housing market, with good actors and bad actors mixed together. The market is now thick with loose underwriting standards, predatory and discriminatory lending practices and increasing repossessions.
"One study estimates that these auto dealer markups cost consumers $26 billion a year.
"Auto dealers got a specific exemption from CFPB oversight and it is no coincidence that auto loans are now the most troubled consumer financial product. Congress should give the CFPB the authority it needs to supervise car loans and keep that $26 billion a year in the pockets of consumers where it belongs."
Warren is basing the $26 billion figure on a 2011 study by the Center for Responsible Lending, a study which
The Washington Post reports was based on data taken from a small slice of the subprime loan market. Had the overall auto finance market been taken into consideration, it would yield a figure of $11.76 billion, "less than half of the figure in the report" and does not exclusively involve markups, the Post says.
Calling Warren's approach "a prime example of overreach," Rep. Randy Neugebauer, R-Texas, told The Hill: "Sen. Warren wants to ignore bipartisan recognition that the CFPB is overstepping its bounds with respect to auto dealers.
"Unfortunately, this latest push is symptomatic of Sen. Warren's desire to micromanage the financial choices of the American consumer."
A senior Democratic House aide told The Hill that Warren faces "an uphill battle" with her planned legislation, while an involved lobbyist told The Hill: "This is not going to go anywhere. However, if she can bring on a Democrat who is more credible than her, like Sen. (Charles) Schumer (D-New York), then she can elevate it as a political wedge issue within the party."
Warren has been meeting with aides to Schumer and Sen. Mark Warner, D-Virginia, to discuss her planned legislation.
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