RENEE MONTAGNE, host:
Congress is close to creating a new consumer protection board that would keep watch over a range of financial products, like mortgages and credit cards. But car dealers who write more than $250 billion in consumer loans each year would be exempt from that scrutiny. If the bill passes with that exemption, it would cap a long an costly lobbying campaign by auto dealers. As one critical part of that campaign, the dealers present themselves as citizens of Main Street, not Wall Street - a vision NPR's Peter Overby reports is more nostalgia than realty.
PETER OVERBY: Several times this year, members of the National Automobile Dealers Association have flown to Washington to see their local lawmakers. Here's the Association's chairman, Oregon dealer Ed Tonkin, at one of those fly-ins, explaining why car loans shouldn't be regulated the way other loans would be.
Mr. ED TONKIN (Chairman, National Automobile Dealers Association): What the neighborhood automobile dealer does is offer convenient access for consumers to credit.
OVERBY: The key phrase there is neighborhood dealers - not the heartless greedy tycoons of Wall Street who set up the 2008 crash - neighborhood dealers.
Mr. TONKIN: Dealers are not banks. We shouldn't be covered in that same sweeping regulation.
OVERBY: But lawyer Thomas Domonoske would tell Congress about a different neighborhood dealer. Domonoske is with the Legal Aid Justice Center in Charlottesville, Virginia. He has long experience fighting lawsuits over car financing fraud.
He says one current client is an elderly man who is living on $800 a month in Social Security and paying $300 a month on his car. Domonoske says the client saw an ad from a local dealership promoting loans that would give lower car payments.
Mr. THOMAS DOMONOSKE (Attorney, Legal Aid Justice Center): He responded to the ad, walked on the lot and said, I need to lower my monthly payment. I want to pay less than $250 a month.
OVERBY: The man talked to several different people. They had him sign one set of documents, and later another one. The loan was made. Then, Domonoske says, the dealership sold that loan to one of the nation's largest banks. But first, someone at the dealership changed a few facts.
Mr. DOMONOSKE: They indicated that he owned his own home, even though he was a renter, that he received a second source of income from a job, and they showed a total income of around $1,800 a month.
OVERBY: So the man who walked in asking to pay $250 a month...
Mr. DOMONOSKE: He was told he was getting $250 a month.
OVERBY: But the loan really cost much more.
Mr. DOMONOSKE: Four hundred and twenty-five dollars a month.
OVERBY: Domonoske is helping the man fight to get out of the loan.
Michael Hudson is a staff writer with the Center for Public Integrity. He covered the subprime mortgage market, and now he's looking into the way auto dealers sell loans.
Mr. MICHAEL HUDSON (Staff Writer, Center for Public Integrity): You know, according to lots of consumer complaints and statements by whistleblowers who have filed lawsuits against their former dealerships, you know, there's a lot of the same practices that were going on in the mortgage market are going on in the auto financing market.
OVERBY: He says that's because the market is amped up by Wall Street, just like the home mortgage market five years ago. The National Automobile Dealers Association, which represents new car dealers, declined to comment until the legislative exemption is approved. But their lobbying campaign is all about contrasting their industry with the mortgage market. Their biggest proponent in the Senate, Kansas Republican Sam Brownback, made the case during floor debate last month.
Senator SAM BROWNBACK (Republican, Kansas): They are the quintessential Main Street business throughout the country. There's not a single auto dealer on Wall Street, none of them, not a one.
OVERBY: Maybe not, but nowadays, auto loans are securitized - that is, repackaged and sold to investors. It's an essential part of auto retailing, as profit margins shrink on the vehicles themselves.
Mr. RAJ DATE (Director, Cambridge Winter Center for Financial Institutions Policy): Auto dealers wouldn't make money today, in today's market, were it not for the fact that they extend loans and leases to customers.
OVERBY: That's Raj Date. He's a former financial industry executive who now runs a small nonprofit group, the Cambridge Winter Center for Financial Institutions Policy.
Mr. DATE: As it turns out, when you get your loan from your car salesman, more than 70 percent of those loans ultimately are funded either by Wall Street bond houses or Wall Street asset-backed securities houses.
OVERBY: The same financial institutions that the auto dealers disparage on Capitol Hill.
Peter Overby, NPR News, Washington.
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