The Consumer Financial Protection Bureau's actions are helping to reshape mortgage lending, payday lending, and many other corners of consumer finance. But in one $970 billion segment — auto finance — the consumer agency's impact so far has been minor.

Since the CFPB opened in 2011, its auto lending efforts have focused mostly on the relatively narrow question of whether minority borrowers are paying higher interest rates as a result of certain discretionary pricing policies.

Yet for all the energy CFPB has poured into trying to rein in variable markups by auto dealers, it has little to show for its work, says Leonard Chanin, a former assistant director of the CFPB's Office of Regulations who is now in private law practice.

"I don't think the CFPB has been successful in changing the way the market functions regarding dealer markups," Chanin says.

The agency's work has been stymied by three main factors: the political clout of the auto dealers, which enabled them to secure an exemption from CFPB oversight in 2010; the fragmented nature of the auto finance market, which has frustrated the effort to impose changes; and the bureau's inability to peer inside large nonbank lenders, including the financing arms of auto manufacturers.

Soon, that third barrier will disappear, as the CFPB begins supervising large nonbank auto lenders. But the first two impediments remain. And that raises questions about the CFPB's long-term ability to reshape an industry whose reputation has long been marred – fairly or not – by accusations of underhanded sales tactics.

Whether the CFPB ultimately succeeds or fails, the stakes are substantial.

"Next to housing, autos are the second most important asset in the consumer's life," says Jeff Lavine, a partner at PricewaterhouseCooopers LLP.

Over the past three years, the CFPB has been trying to bring about reforms in how dealers get paid for arranging the financing of their car sales. Under the current system, dealers often get paid more by banks and auto finance companies for putting borrowers into costlier loans — a practice that hurts less savvy shoppers.

The CFPB would like to see the dealers receive a flat fee instead, but that idea is unpopular among the dealers, and in Congress, where the dealers hold great sway. In that hostile environment, the agency has taken a circuitous route to achieve its desired result.

The agency could write a rule that bars the banks and finance companies from allowing the dealers to take a discretionary fee. But that path would risk a sharp political backlash from the dealers.

Instead, the bureau has threatened enforcement actions against banks that do business with auto dealers whose pricing policies result in higher charges for minority borrowers. The apparent hope was that some of the nation's largest auto financing sources would require dealers to switch to flat fees, and the rest of the auto finance industry would follow suit.

The bureau insists that its efforts have had a significant impact. CFPB spokesman Sam Gilford said in an email that some lenders have imposed lower caps on the size of discretionary markups, and others have moved away from discretionary markups altogether. "Finally, while the Bureau does not have jurisdiction over most auto dealers, we have noted an increased focus on fair lending compliance by auto dealers," Gilford wrote.

But other observers say the CFPB has yet to reshape the auto lending market, even if it's sparked some small changes around the edges.

"The CFPB has put a lot of pressure on financing sources to change their financing model," says Paul Metrey, chief regulatory counsel at the National Automotive Dealers Association. "And that's really not something that the finance-source community has embraced."

The fractured nature of the auto finance industry poses a challenge for the CFPB. Thousands of lenders — including banks, credit unions, the finance arms of automakers, and other nonbank lenders — offer credit through roughly 18,000 auto dealers nationwide. The largest player has less than 6% market share, which limits the influence of any one lender.

Auto lenders are reluctant to switch to the flat-fee pricing model because they're worried that unhappy car dealers will abandon them, says Bill Himpler, executive vice president of federal government affairs at the American Financial Services Association, which represents both banks and nonbanks.

"It needs to be industrywide. If one or two lenders do it, you're not really moving the needle," adds James Kim, a CFPB former enforcement lawyer now at Arnold & Porter LLP.

What's more, Democrats on Capitol Hill, who back up the CFPB on most issues, are proving contentious. A House bill that would nullify 2013 CFPB guidance on the discretionary markup issue has 36 Democratic co-sponsors.

At a recent House hearing, Rep. Ed Perlmutter, D-Colo., told CFPB Director Richard Cordray that his agency has overstepped its bounds on the discretionary markup issue. "I would just ask you all to stay in your lane," Perlmutter said.

The CFPB already supervises banks that make auto loans, as long as they have at least $10 billion of assets, and later this year, is expected to start supervising larger nonbanks in the auto finance market. The new supervisory authority will give the bureau a wider view of the auto finance market and, at least in theory, a better ability to spot practices that harm consumers.

At the same time, top CFPB officials are showing interest in scrutinizing an even broader range of auto finance industry practices than the agency has tackled so far. In a speech last September, Cordray spoke about add-on products — including rustproofing, warranties and service plans — that auto dealers often fold into the financing of car purchases. "Consumers should not be lured into a deal by misleading statements about the benefits of the product they are being sold," he said.

As the CFPB pushes deeper into auto lending, banks and finance companies likely will have to spend more money on efforts to oversee the auto dealers that serve as their partners. But it remains to be seen whether the agency will be able to bring about more fundamental changes in how the auto finance industry operates.

The CFPB will still be working in a highly fragmented market, where the effect of any one enforcement action will be limited. And the agency will still be up against 18,000 auto dealers, which are spread across congressional districts nationwide and enjoy an exemption from CFPB oversight. Roughly 80% of all U.S. car loans are financed inside dealerships.

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