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WASHINGTON, D.C. — In an early morning vote Friday, House and Senate leaders decided to exempt dealers from consumer financial protection agency oversight. While this leaves many dealers relieved, buy-here, pay-here dealers remain under the gun. They are not exempt.

The combined legislation will now go House and Senate for a vote and is expected to receive President Obama's signature by July 4 despite the dealer exemption. Obama had previously spoken out against dealer exemption.

When it comes to the BHPH industry, what it boils down to is that the White House administration is going after the alternative financial services industry, which includes payday lending, cash advance businesses and buy-here, pay-here dealers, who are lumped into this category, according to Ken Shilson, founder of the National Alliance of Buy-Here, Pay-Here Dealers.

While much about the new regulations are unknown as of yet, Shilson did offer some tips and insights.

"They're going to exercise direct supervision over the alternative financial services industry," Shilson explained to Auto Remarketing Friday. "They have placed the self-finance auto business into the same pot as alternative financial services, so BHPH dealers are not exempt. It looks like we're in for some very choppy water over the next year."

While Shilson said it will take some time for the government to implement the new regulations, he's hearing that this could come a lot faster than expected. In fact, enforcement could start taking place within six months, although Shilson remains doubtful the government can move that quickly.

So how can dealers prepare? First, Shilson recommends they educate themselves on the contents of the new bill. He indicated that the Wall Street reform legislation touches upon everything from insurance to banks, "everybody who provides financing seems to be sharing the pain."

"Have an awareness of the breadth of this thing and how far reaching it is," Shilson stressed to dealers. "Second, we don't know yet how they will implement the legislation. Will they implement it strictly or will it be loosely interpreted? Or will it fall somewhere in between? Only time will sort that out. Dealers should assume the worse and prepare for that, although I'm hoping for better than that.

"Even attorneys don't know yet how the new regulations will impact BHPH dealers. Nobody knows exactly how the bus is going to come into the station. While it's possible that dealer-finance companies could be viewed as third-party finance companies, I don't think that will be the case. I'm not a believer that will happen. I think what they are trying to control is originations. They are trying to regulate the markup on the front end. And the related finance company is usually a buyer in the secondary market. Dealers are the ones that structure the loans, so I see the regulations impacting them."

Additionally, he said BHPH dealers can expect higher compliance costs to be associated with the new agency.

"Compliance is always an added cost and this will be an added burden. It will drive up the cost of operations and it will be hard to find relief to pass this through to the consumer," Shilson pointed out.

In essence, the new agency will look to ensure that consumers are treated fairly, and according to Shilson, BHPH dealers should already be doing this. He calls the new regulations a "misguided effort to control the industry."

Despite the concerns BHPH dealers are sure to have about the new regulations, Shilson urged them not to panic.

"Lets not make a bunch of assumptions. Lets work together to see how we can work through this thing," he stressed.

Shilson indicated that consumer protection agency oversight will be a part of the NABD's Underwriting and Collections conference slated for Nov. 7-9 at the Dallas Hyatt Regency. He encouraged dealers to attend to learn more, as hopefully more information will available in several months. To register, visit www.bhphinfo.com.

"Independent and BHPH dealers, with some rare exceptions, won't have an exemption from oversight by the CFPB. Those dealers who qualify for the exemption will be in for tougher oversight by the FTC, and will see significant changes to the way they do business driven by the fact that the banks, sales finance companies and other financial institutions who buy retail installment contracts from dealers will not be exempt and will no doubt pass on to dealers the various restrictions and limitations imposed upon them by the CFPB. ," explained Tom Hudson, an attorney with Hudson Cook. 

  "Dealer exemption or not, we (the auto finance industry) have lost this war. Now we need to turn to the terms of the peace treaty, namely the regulations that the CFPB and the FTC will propose. The details of the regulations that are ultimately issued by the CFPB will determine how badly the industry has been damaged by this new wave of federal regulation," he added

NADA, AIADA Embrace Dealer Exemption

At its essence, the combined House and Senate Wall Street reform legislation exempts dealers who facilitate financing for their customers.

"Today's (Friday) vote by the conference committee is truly a win for consumers," said Ed Tonkin, chairman of the National Automobile Dealers Association. "Dealer-assisted financing will continue to provide more convenience, more competition and more choices for car buyers."

He went on to add, "This is also a testament to the hard work of all the auto dealers and dealership employees around the country who made sure that the merits of the issues were heard. Their grassroots efforts truly made today's victory possible."

NADA and its members were very active in calling upon Congress to include exemption. Due to their diligence, the House included dealer exemption in its final bill version; however, the Senate did not. Instead, the Senate took a vote to instruct conferees to include the dealer exception in the final, combined legislation.

Within a week, the bill is expected to return to the House and Senate for a final vote.

"The goal all along was to keep a new, untested government agency from creating burdensome and unnecessary rules that would make it harder and more expensive for car buyers to access auto credit," Tonkin highlighted.

Meanwhile, the American International Automobile Dealers Association also spoke out in favor of the congressional leaders' decision.

"Our dealers are breathing a sigh of relief," said Cody Lusk, AIADA president. "These are small business owners who embody American enterprise and did nothing to cause the global financial collapse. New and redundant federal regulations would have set back their recovery.

"We are pleased that our dealers' representatives heard their concerns and voted to support their Main Street constituents. We are particularly grateful to the two chief sponsors of the dealer exemption language, Sen. Sam Brownback (R-Kansas) and Rep. John Campbell (R-Calif.). This vote highlights the national unity of dealers and the power of their grassroots efforts," Lusk continued.

Ultimately, all dealers are still subject to regulation by the Federal Trade Commission, the Federal Reserve and various state entities. And the new law does allow for expedited rulemaking by the FTC, which could impact dealers.

AIADA and NADA indicated they will monitor this and the other aspects of the legislation as it continues to work its way through Congress on its way to the White House for the president's signature and into the regulatory process.