Nonbank Financial Companies

Floor Speech

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Mr. BROWNBACK. Mr. President, I rise to speak regarding the auto dealer exclusion in section 1029 of H.R. 4173, the Restoring American Financial Stability Act of 2010.

I am pleased that my amendment excluding auto dealers from the jurisdiction of the Bureau of Consumer Financial Protection, CFPB, was included in the conference report to H.R. 4173. This proposal attracted bipartisan support because the auto dealers should not have been regulated in this bill in the first place. They are retailers. They should not be regulated as bankers. They did not cause the Wall Street meltdown. They didn't bring down Lehman Brothers or Bear Stearns.

The purpose of my amendment was to protect third party auto financing. The CFPB could have abolished that kind of financing, but keeping these provisions in the bill will preserve a variety of auto financing choices for consumers, and we know that more choices result in lower prices. And the provisions of my amendment keep auto loans convenient and affordable while retaining existing consumer protection laws and policies.

The end result is a balance between consumer protection and the availability of affordable and accessible credit for consumers to meet their transportation needs. Except for subsection (d), Section 1029 is the result of a lot of debate and discussion in both houses of Congress dating back to last year. During the House Financial Services Committee's markup of this legislation, Representative John Campbell of California offered an amendment to exclude auto dealers from the jurisdiction of the CFPB. The Campbell amendment passed on a bipartisan vote of 47-21. A modified form of the Campbell amendment was included during floor consideration of H.R. 4173, which passed by a vote of 223-202 on December 11, 2009.

I offered an amendment during Senate consideration of H.R. 4173 to serve as a companion to the Campbell amendment. Although my amendment did not receive a direct vote, on May 24, the Senate voted to instruct its conferees to recede to the House on this matter, subject to the modifications of the Brownback amendment. This motion passed on a bipartisan vote of 60-30.

The final conference committee agreement incorporates the Brownback-Campbell language with some modifications. I want to discuss those provisions specifically and highlight some significant points.

First, section 1029(a) provides that the CFPB ``may not exercise any rulemaking, supervisory, enforcement or any other authority, including any authority to order assessments, over a motor vehicle dealer that is predominately engaged in the sale and servicing of motor vehicle, the leasing and servicing of motor vehicles, or both.'' This is a clear, unambiguous exclusion from the authority of the CFPB for motor vehicle dealers.

Three exceptions to the exclusion for dealers are enumerated in section 1029(b). Subsection (b)(1) describes activity related to real estate transactions with consumers. Subsection (b)(2) describes motor vehicle transactions in which the dealer underwrites, funds, and services motor vehicle retail installment sales contracts and lease agreements without the involvement of an unaffiliated third party finance or leasing source so-called ``buy-here-pay-here'' transactions. Subsection (b)(3) describes the consumer financial products and services offered by motor vehicle dealers and limits the exclusion to those activities or any related or ancillary product or service. The combination of 1029(a) and 1029(b) ensures that motor vehicle dealers providing financial products or services related to the activities described in subsection (b)(3) are completely excluded from the CFPB.

Section 1029(c) preserves the authority of the Federal Reserve Board, the Federal Trade Commission and any other Federal agency having authority to regulate motor vehicle dealers.

Section 1029(d) provides that the Federal Trade Commission, FTC, will have the authority to write rules to address unfair or deceptive acts or practices by motor vehicle dealers pursuant to the procedures set forth in the Administrative Procedures Act instead of the Magnuson-Moss Act. Motor vehicles dealers are set to become the only businesses in America singled out for regulation in this manner. I want to emphasize that this specific provision was neither in the House or Senate bill and was not under consideration in either chamber. It was added by House-Senate conferees. Section 1029(d) was included without any evidence to justify its inclusion, or any debate for that matter. I do not support this provision, as I believe it invites the FTC to again engage in regulatory overreach. I am concerned that the removal of the well-established ``Magnuson-Moss'' safeguards gives the FTC free rein to conduct fishing expeditions into any area of automotive finance it perceives as ``unfair.''

The present leadership of the FTC has promised that if Magnuson-Moss were repealed, they would use their new power prudently. I hope that this is the case, because we do not want to repeat the kind of excessive FTC regulation that occurred in the 1970s. For that reason, Congress must monitor the FTC very closely to ensure the vast power Congress will now bestow on this agency is not once again abused.

Section 1029(e) requires the Federal Reserve Board and the Federal Trade Commission to coordinate with the Office of Service Member Affairs to ensure that any complaints raised by men and women in the armed services are addressed effectively by the appropriate enforcement agency.

Section 1029(f) defines certain terms in the bill. My amendment expanded the House language to also exclude similarly situated RV and boat dealers.

The concept of excluding auto dealers from the jurisdiction of the CFPB gained bipartisan support, but there was some debate about its effect on members of the U.S. Armed Forces. Because we all share the utmost concern for our service men and women, I think it is appropriate to revisit that argument briefly and to reiterate my strong belief that this exclusion will not hurt members of the military.

On February 26, Under Secretary of Defense Clifford Stanley wrote a widely distributed letter contending that excluding auto dealers from the CFPB would have a harmful effect on servicemembers. On May 14, I sent a letter to Under Secretary Stanley asking him to further clarify and substantiate the claims he made in his letter to ensure that the Senate would not take action that would harm military members.

Under Secretary Stanley's May 18 response to my letter offered a series of anecdotes about finance practices that were already illegal. In addition, Under Secretary Stanley's letter related the results of a survey of military members regarding auto financing. That survey, which was informal and unscientific, unfortunately failed to specify the sources of the problems some servicemembers encountered. It gave no indication that auto dealers were responsible for bad loans made to military members and made, and I think it is unfortunate that auto dealers were blamed for problems they did not cause on the basis of this survey.

In fact, I was surprised that Pentagon officials cited this survey instead of relying on their comprehensive 2006 report on abusive lending practices. This study, entitled ``Report on Predatory Lending Practices Directed at Members of the Armed Forces and Their Dependents'' did not include dealer-assisted financing among its list of predatory lending practices. In the end, in my view, the best information available indicates that servicemembers will not be harmed by exempting dealers from the jurisdiction of the CFPB. I am glad that argument carried the day.

I am very concerned that the CFPB, which will not be overseen by the Office of Management and Budget and will not depend on Congress for its funding, will at some point in the future engage in regulatory overreach that will hurt our economy. Excluding auto, boat and RV dealers from the CFPB jurisdiction will ensure that these Main Street small businesses are protected from such harmful regulation. For consumers, my amendment guarantees that access to affordable credit is preserved, and all consumer protections laws are maintained. While I am very concerned about the implications of H.R. 4173 overall, I am pleased that at least in this instance we have found a way to limit the threat of regulations that hurt consumers and strangle our economy.

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