With a crush of must-pass bills coming at the end of the year, it’s a lobbyist feeding frenzy on Capitol Hill. The prize: a rider tacked onto one of those bills that’s worth big bucks.
And the biggest winner so far is not the industry you’d normally think of as the most powerful in Washington — not banking, pharmaceuticals, oil and gas, or telecommunications. Arguably the most successful group when it comes to building bipartisan coalitions to protect their profits and avoid federal scrutiny is auto dealers.
Last Wednesday, 88 Democrats joined 244 Republicans in the House to advance a bill that amounts to a stand-down order to the Consumer Financial Protection Bureau. If it becomes law, CFPB will no longer be able to crack down on racial discrimination in auto lending that costs individual African-American and Hispanic consumers hundreds of dollars, while earning dealers hundreds of millions in ill-gotten profits.
The vote was essentially a test by the GOP leadership to see how much Democratic support they could get for deregulatory measures. By contrast, a bill that would have relaxed the rules for mortgage lenders who charge high upfront fees or balloon payments only got 12 Democratic votes.
But with those 88 Democrats supporting the auto lending bill, if Republicans attach it as a rider, they can cite a big bipartisan coalition to force the White House to accept it.
This victory is far from the only perk auto dealers have secured. Thanks to a dealer-friendly provision inserted into the bill that created the CFPB in the first place, the agency cannot monitor dealers directly. In the cases of racial discrimination, for instance, CFPB can only fine the lenders who finance car purchases, not the dealers who make the markups.
Numerous state laws safeguard their existence, by preventing auto manufacturers like Tesla from selling directly to consumers, forcing them to go through local dealerships. Congress has never stepped in to preempt those state laws, and dealers work hard to make sure that never happens.
How do auto dealers wield such power? The National Auto Dealers Association, the main trade group for the industry, has delivered over $35 million to members of Congress since 2002, while averaging roughly $3 million a year in lobbying expenses since 2008. And individual dealers are also generous; their $7 million in contributions in the 2014 election cycle went to an amazing 372 out of the 435 House members, and 57 out of the 100 senators.
But there’s more to it than that.
Auto dealers are local leaders in their communities. In an increasingly homogenized nation with conglomerate banks and big-box retail stores, dealerships are often the most visible Main Street businesses in town, employing over 1 million Americans.
“They’re in just about every congressional district,” said Jim Lardner, spokesperson for Americans for Financial Reform. “They sponsor Little League teams. Their advertising dollars are crucial to local newspapers and broadcasters. When they talk, lawmakers don’t just listen — they have a hard time hearing anybody else or looking at facts.”
The industry also has its own mini-caucus. Seven current Republican House members (including two freshmen) either run dealerships or managed them before coming to Washington. Yet another, John Campbell of California, retired in 2014 — but not before authoring the carve-out that shielded dealers from CFPB oversight. Campbell was actually collecting millions of dollars in rent from dealers on his former properties when he authored the legislation. Senior Democrats, not wanting to defy auto dealers, famously changed their votes when it became clear that the carve-out would be victorious.
With CFPB blocked, auto dealers have run wild, employing numerous scams to boost profits and dishing out record amounts of “subprime” auto loans, much like the subprime mortgages that drove the financial crisis. The Federal Trade Commission, notoriously feckless on consumer protection, has oversight responsibility over dealers, with predictable results.
Last week’s congressional vote is quite a stunning example of how the auto dealers get their way, no matter the circumstances.
CFPB released a guidance in 2013 warning lenders about compliance with the Equal Credit Opportunity Act, amid voluminous research showing that dealers charge higher interest rates to African-Americans and Hispanics than white customers with similar credit profiles, translating to hundreds of dollars per customer over the life of the loan. CFPB has entered into settlements with the financing arm of Honda, Ally Bank, Fifth Third Bank, and other undisclosed lenders, obtaining over $200 million for ripped-off customers.
Fining the auto lenders led to changes in compensation practices for auto dealers, who make large profits by marking up the interest rate on the cars they sell. So they went to work to neuter CFPB. A news article in the Wall Street Journal in August delivered the dealers’ argument: that the crackdown will make auto lending more expensive. They claim that, while lowering the more optional dealer markup, auto lenders will raise less negotiable rates.
The implicit argument here is that, if dealers cannot discriminate against black people and Hispanics, everyone will have to pay the price.
The industry-crafted legislation, H.R. 1737, would revoke the CFPB guidance and require the agency to undergo several reports and cost-benefit analyses before being able to issue a new guidance. It’s mainly a delaying tactic to allow the discrimination to go forward.
The dealer lobby found several Democrats on the House Financial Services Committee to support the bill. Financial Services Committee slots are famously given to freshman members who need to tap large sources of money for their campaigns, and will gladly accept industry-backed initiatives to do so. Thirteen Democrats backed H.R. 1737 in committee, with only nine opposing.
In all, 65 Democrats, all with auto dealers in their districts, co-sponsored the bill, including an astonishing 15 members of the Congressional Black Caucus, Congressional Hispanic Caucus, and Congressional Asian Pacific American Caucus, representing communities harmed by racial discrimination.
The auto dealers succeeded by “leveraging their personal relationships and influence with members,” Rep. Maxine Waters, D-Calif., ranking member of the House Financial Services Committee, told The Intercept. She voted no.
The National Automotive Dealers Association had lobbying help from the Alliance of Automobile Manufacturers and the American Financial Services Association, adding additional industries to put pressure on members of Congress.
The trade group for minority-owned auto dealers actually opposed the bill, but after the auto industry bailout, manufacturers cut more ties with minority dealers than white-owned dealerships. Despite over 30 percent of auto customers being minorities, only 5 percent of dealerships are minority-owned.
Importantly, in the Statement of Administration Policy on H.R. 1737, the White House, while strongly opposing the bill, did not say that the president would veto it. That was a key signal, freeing up Democrats to support something their funders might like.
While over 60 civil rights and consumer groups worked to limit Democratic defections — and did manage to flip a few of the bill’s co-sponsors — the National Automotive Dealers Association outmatched them.
“One cannot help but be disappointed by the number of Democratic votes in favor of continuing this rampant discrimination,” Waters said.
The bill’s success was a warning shot to CFPB, showing that Congress has the power to interfere with its priorities, and in that way could chill future consumer protection efforts by undermining the agency’s independence. Though CFPB has tangled with banks, credit card companies, and student lenders, they now know there’s one group they can’t mess with: auto dealers.
Couple points about this article:
1) The dollars given from the auto dealer lobbyists is a pittance compared to other industries. Using round numbers of $3 million donated and 500 members of Congress that comes to $6k per representative per year. This is some serious bang for buck. Yes there’s “more than that” since dealerships employ so many people and advertise locally, but so do lots of businesses. There’s no real evidence here that the “dealership lobby” is some all-powerful force in DC.
2) It’s been widely discussed elsewhere that the “evaluation” of dealership lending practices amounts to drawing inferences from statistical analysis of auto loans. Determinations of whether someone was a minority were made based on the borrowers last name and zip code. So, if your last name is Johnson and you live in a particular area, they assumed you were African American. While that approach can probably work some of the time, it’s hardly a robust way to go about creating legislation.
3) Further to #2, money has indeed been collected via settlements and set aside. To date the CFPB has not been able to find anyone actually, you know, harmed. However letters were sent to borrowers informing them of their possible payday (and instructing them to write back and correct the record if they are not a minority). In other words, SOMETHING wrong happened here and SOMEONE was harmed, but we don’t know exactly what or whom.
4) The sentence “Despite over 30 percent of auto customers being minorities, only 5 percent of dealerships are minority-owned” is a bizarre non-sequitor. It has nothing to do with the article and I’m not hearing lots of stories about minorities being denied the ability to open a car dealership. It is odd that even the minority-owned dealerships opposed this legislation, so presumably they love discriminating against minorities for profit also.
5) The phrase ” all with auto dealers in their districts” when referring to the 65 Democrats that co-sponsored the bill is meant to inflame (I think) but is really quite innocuous. In fact, just a few paragraphs earlier, the author quoted a spokesman presumably supportive of the bill noting that “dealerships are in just about every Congressional district”. So we’re supposed to be appalled that these Dems have dealerships in their area? I would wager that many of the Congressmen that voted against the bill have car dealerships in their districts too so I’m not sure what the statement is supposed to demonstrate.
6) There is the implicit assumption that dealership are foregoing even more profits by only discriminating only against minorities. It find it very hard to believe that a huge group of individuals, most of whom don’t know each other, are all just randomly discriminating against minorities because, well, they can? Or they’re all just racist? Meanwhile they see Joe Whitey come in the door and think, “well I COULD charge him more for a loan and make more money, but since he’s white I’ll give him the REAL rate”. Not to say there aren’t one off individuals that think or behave this way or that minorities don’t face real-world racism, but it’s absurd to think a randomly-generated sample of people would.
If it is “astonishing” or even noteworthy to you that democrats
and/or their black caucus
would betray their supporters for corporate predators
then you have not been paying very close attention to
what the democrats do on a regular basis.
The idea that the democrats are opposed to corporate domination
along side of their beloved republican allies is an
idea which the democrats need you to swallow so that
they and their allies can continue the spread of the diseased religion
of corporate capitalism upon which they depend.
They willfully slaughtered hundreds of thousands in various recent wars
for their corporate masters,
so a little more corporate predatory “lending” is hardly noteworthy to them.
They are either stupid or deliberately insidious and these are both
ample reasons to repudiate them, but as long as seemingly intelligent
people continue to promote the false notion that the democrats aren’t
as dangerously hypocritical as the republicans
this sort of perversity will continue.
Come November 2016, you can expect that the democrat/republican
perversity will again , through ignorance and fear,
have overwhelming support by the voters in the fake USA.
Can someone please explain this to me? I am assuming that you all think these car dealers are evil, greedy individuals who will stop at nothing to make a profit. So why would they stop at price gouging black and hispanic people, and leave the majority of the population ungouged? It seems as if they are missing a massive profit opportunity to also gouge white people out of a few hundred bucks as well.
Never underestimate the power of racism and xenophobia
(people with darker skin tones are not seen as part of the “white” nation)
being used as a way to make a buck in the USA.
Realtors and developers have been known to do the same sort
of prejudicial classifications of certain areas within cities and
local governments have also.
Hahahahaha. Time to kiss my $1k 82′ Corolla station wagon. The one that still gets 30 mpg, is paid for, and I can fix it. As for those who still buy new cars, wait till the hackers stop a million cars at a time or kills one of your family. . Wait till you have to have one repaired. Meanwhile, I’ll still get from point A to B while saving what you have to pay each month, which from what I see, is a goddamned fortune. As for those scumbag Congresscritters, the auto dealers and manufacturers..they can kiss my ass.
The major problem with electric cars is a psychological one. If people aren’t buying gas each week, their desire for cheap gas may diminish and it will be harder to mobilize public support for wars in the Middle East. Therefore the car dealers, oil companies and arms manufacturers are really all playing on the same team. So it’s a bit unfair to the other lobbies named in this article to claim they are less successful than the auto dealerships.
Mr. Dayen is attempting to deploy a divide and conquer strategy, but it won’t work. Solidarity, forever!
What about the article?
I was taking issue with the statement “And the biggest winner so far is not the industry you’d normally think of as the most powerful in Washington”.
Lobbyists don’t act in isolation – so their effectiveness often depends on who their allies are.
In this case, you have the car dealers and oil companies (who have in interest in slowing down the sale of electric cars) on one side. On the other, you have the bankers (who would like to get more of the action on loans for car buying), the electric car manufacturers and potentially the traditional car companies themselves (who would love to get rid of their dealers if they could). Adding in the arms manufacturers was a bit of hyperbole.
Consumers, as the prey, have a certain interest seeing which group of predators emerges victorious.
Some interesting information presented (taking the bite out of the CFPB, conflicts of interest, discrimination) but as a whole, the article falls far below The Intercept’s bar.
Comparing the influence upon Congress by NADA to the money and power wielded by Big Pharma, and the industries of Finance, Oil/Gas and Telecommunications is like comparing elementary school to university, Little League to professional baseball. It’s an anthill next to a mountain.
Reporter Dayen states NADA “has delivered over $35 million to members of Congress since 2002.” Wow… that’s $2.7 million per year. Using the LOWEST “lobby-dollar” estimates available:
Pharma spent $229 million last year alone.
Oil and Gas = $141 million.
Banks, Securities and Investments = $164 million.
Telecom = $100 Million… conservatively.
http://www.opensecrets.org/lobby/top.php?showYear=2014&indexType=i
Surely time and resources could have been better used on a different subject.
willbill,
You should learn more about the business model of car dealers – especially those that prey upon lower income households. Here’s a well written story.
http://dealbook.nytimes.com/2015/01/26/investment-riches-built-on-auto-loans-to-poor/
The bottom line is that it doesn’t take much money to buy a member of congress.
First, I’ve found that it’s never a good way to start a rebuttal by assuming that your “opponent” doesn’t knows little about the topic.
I’m well-acquainted with the model, the sub-prime loan industry and companies such as Santander, ACA, First Investors, Exeter, et. al.
And according the article you cited, the problem isn’t “preying upon lower income households.” The problem is securitization of high-interest loans. Those loans are being (falsely) written by auto dealers to get people into cars; people who can’t/don’t have any jobs or don’t have the income to pay for ANY loan… prime or sub.
For every honest person like Dana Payne in the article, there are tens of thousands who straight up lie about their income and falsify pay stubs to verify it. That’s fraud BY THE CONSUMER.
What part of the American economy does not boil down to a small number of wealthy individuals positioning employment and economic transactions as a lever with which to exploit the poorer majority of the population?
Again, the fallacy of the CFPB being an “independent” agency!
The CFPB is under the control of the
Financial Security Oversight Council (FSOC) and
must report to the corporate controlled congress twice a year
to justify itself.
The FSOC is chaired by the Secretary of the Treasury and
whoever is in charge of the Treasury has
(#1.) the option of setting aside any rulings which are made by the CFPB
and
(#2.) the option of redacting the minutes of the meetings of the FSOC.
The CFPB is NOT independent of Wall Street control.
Anyone like Geithner, Summers, or Lew can lawfully stop the CFPB.
These actions by congress are probably meant to protect the
sham CFPB from being exposed as the pretense which it is.
The Dodd Frank Act was a way of continuing the corruption
while disguised by these sham “reforms.”
This is really disgusting, and emblematic of our de-facto oligarchical system…
I didn’t see the link to the bill text in the above. You can start at congress.gov and search for HR 1737, coming quickly to https://www.congress.gov/bill/114th-congress/house-bill/1737/text?q={%22search%22%3A[%22\%22hr1737\%22%22]}&resultIndex=1 .
To me it doesn’t look like an outright prohibition, but definitely a hindrance. More importantly, it affects all aspects of the auto loans – most notably, discrimination. I’ve actually seen a very intelligent woman take her father with her to a car dealer because she knew she’d end up getting charged a higher price for being female.
This whole sleazy bazaar seems like an aberration from the sticker prices we’re used to on ordinary products, but I fear that aberration is only the tip of a very large iceberg. People have already largely learned to surrender to giving up personal information whenever they buy groceries to avoid a 10% privacy penalty. Time is coming there’s not going to be a price on the rack – when every time you bought an overpriced product or failed to shop around for a better deal – or shopped around too much and wasted their time, or made returns, or demanded your rights, or were rude to a telemarketer, or God forbid sued someone, or worst of all said something bad about the company on Twitter, or contrary to capitalism being the one true and best system in the world ruled by the best leaders … all will go into an AI, and somehow a price just for you will come out from an AI, and people will never know why but they sure as hell will get the point soon enough.
Here in Canada an aspect of this type of manipulation is used by lenders to discourage the public from shopping lending rates. All rates are “subject to approved credit”. This requires a credit check. An applicant’s credit rating is negatively affected with each further credit check. –Simple, ….and an outrage.
This was exposed some years ago but as far as I know nothing happened and it’s still the practice.
Mr. Dayen’s going to have to show some proof that there is a state in the US that actually bans citizens in that state from buying direct from Tesla’s website. What many states ban is manufacturers opening up their own sales or service facilities anywhere in the state. I live in one: New Mexico.
There are Tesla owners in all 50 states. There are over 100 in New Mexico, despite the laws preventing Tesla from opening up even a SERVICE center here, let alone a store.
But more people in New Mexico are buying Teslas all the time. And it’s the same in other states with absurd protectionist dealer-controlled laws, which is the majority of the US.
This is the case in New Jersey. Chris Christie made a huge deal out of “stopping” Tesla on behalf of the other companies.
http://www.engadget.com/2014/07/17/tesla-motors-us-sales/