LARGO, Md. — Damon Lester, president of the National
Association of Minority Automobile Dealers, sent a letter to President Barack Obama
last week, articulating three possible ramifications if federal regulations
eventually lead to the elimination of dealer markups.

Lester outlined NAMAD's position in light of the Consumer
Financial Protection Bureau sending out its guidance regarding indirect auto
financing.

"It is our belief that if the CFPB is permitted to eliminate
a dealer's ability to reasonably markup buy rates and implement flat fees per
transaction, these changes may be counter the CFPB's goal which is to protect
the consumer, particularly the ‘protected class,'" Lester said.

Should markups beyond the buy rate issued by a bank or
finance company no longer be an option in the store's F&I office, Lester
listed the potential consequences to the president as well as the CFPB, the
Congressional Black Caucus and the Congressional Hispanic Caucus, which were
among the 11 entities the NAMAD president copied on delivery of the letter.

The possible outcomes included:

—Small dealerships may be forced to lay off employees and/or
close their doors due to their inability to generate income and pay staff.

—The price of the vehicle may increase.

—Dealerships finance and insurance employees may no longer
be incentivized to help buyers find financing (particularly those who have
marginal to low credit scores).

"As you know, dealerships — both minority and non-minority
owned — provide a service to their customers to find affordable financing for
those ‘tough deals,'" Lester said. "The relationship between the dealership and
financial institutions is one of a true partnership; financial institutions
determine the buy rate and the dealership has the discretion to mark up no more
than 2 percentage points as compensation for arranging the financing.

"This process provides a win/win to both the customer and the
dealership," he continued. "The industry average on a dealership reserve is
less than a percentage point."

Lester went on to say that NAMAD is in support of the CFPB's
recommendation of imposing controls on dealer markup.

"However we recommend that, in an effort to promote
transparency and promote a consumer friendly environment, all dealerships must
document their reserve policy and disclose this policy to all consumers,"
Lester said.

NAMAD also came out in support of creating a monitoring
policy as part of a fair lending compliance program. Lester even highlighted
two elements that should be included:

—Consumer education on how to purchase a vehicle.

—Education at the dealership level from the financial
institutions.

"We along with the American International Automobile Dealers
Association (AIADA) and the National Automobile Dealers Association (NADA) are
more than willing to come up with a process that is fair for all parties the
consumer, the bureau, federal and state agencies, and the dealership," Lester
said.

Lester's entire letter to Obama can be found here.

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