A consumer advocacy group in California has taken initial steps to place a proposal on the state’s November 2014 ballot that would prohibit dealerships from adding to interest rates on consumer auto loans.
Automotive News reported that the group, Consumers for Auto Reliability and Safety, based in Sacramento, characterizes the dealership add-ons — also known as the dealer reserve — as “hidden extra charges.”
Rosemary Shahan, president of the group, told Automotive News that like the Consumer Financial Protection Bureau (CFPB), her group is OK with dealerships being compensated for arranging loans, but not if the dealership can add to the consumer’s interest rate.
The markup is “related to increasing the interest rate, and that’s what we want to get away from,” Shahan said in a phone interview on Tuesday, Jan. 7.
The Consumer Financial Protection Bureau has said consistently that dealerships deserve to be compensated for negotiating auto loans but that they shouldn’t have discretion in setting that compensation because minority borrowers can end up paying higher amounts of interest. The bureau suggests lenders replace the dealer reserve with flat fees or some other form of dealer compensation.
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