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.