The financial overhaul bill awaiting final action in the Senate includes a new regulator whose aim is to make sure mortgages, credit cards and other products from big banks don't abuse or confuse you.
But if you want your auto dealer to arrange a car loan or get a community bank to extend you a credit line, be sure to read the fine print.
Thanks to their lobbying muscle in Washington, auto dealers and community banks managed to keep themselves outside the reach of the new Consumer Financial Protection Bureau.
Consumer advocates say borrowers will remain vulnerable to the kind of unscrupulous peddling of financial services products that led to the financial crisis.
"You're going to end up with regulatory gaps that can hurt consumers," said Travis Plunkett, legislative director of the Consumer Federation of America.
The influence of auto dealers and community banks derives from the strength of their small-town roots. They are people who serve as Rotary Club officers and sponsors of Little League teams. Dealers arrange most loans for auto buyers. Community banks account for more than 98 percent of U.S. banks.
The consumer bureau will write and enforce rules for financial services and products. It can ban confusing fine print on loan documents — except if the loans come through auto dealers. And it can punish banks for offering deceptive loans — unless they're community banks.
Auto dealers, including those that sell boats, motorcycles and RVs, won a blanket exemption from the new consumer protection bureau.
Community banks scored a smaller but still crucial victory: They're supposed to follow the bureau's rules. But the bureau can't force them.
That duty rests with existing federal bank agencies and state authorities. Those same agencies failed to crack down on many of the abuses that led to the 2008 crisis. That's a big reason why a new financial protection bureau was deemed necessary.
The exemptions for auto dealers and community banks — defined as those with less than $10 billion in assets — reflect their vast influence in Washington. They succeeded even as lobbying by the nation's banking giants failed to protect those companies from the new bureau's strictest oversight.
The National Automobile Dealers Association began barraging congressional offices with phone calls and e-mails as early as last fall. As a vote neared, dealers visited Washington to plead their case to lawmakers, according to Ed Tonkin, the NADA chairman.
They argued that auto dealers had been unfairly swept up in the zeal to rein in Wall Street's excesses. They noted that dealers merely arrange most auto loans, linking customers with lenders, and are already subject to regulations on auto financing.
"This is a government overreach into private business," Tonkin said. "Dealers are not banks, and we shouldn't be subject to bank rules."
Yet because they act as a go-between, consumer advocates say, auto dealers fill the same role as the mortgage brokers who fed the housing crisis by pushing high-risk loans. Some auto dealers have been accused of misleading borrowers about financing terms and of pushing them into loans with higher interest rates than their credit scores warranted.
The NADA denies this. It says the money dealers make from arranging consumer loans from banks is slight. It notes that the minority of auto dealers that lend directly to consumers still would be regulated. And it warns that the cost to dealers of complying with new regulations would drive up the cost of cars.
The auto dealers' exemption ran into unexpected resistance when the Army secretary and other top Pentagon officials had urged Congress not to give dealers a pass. Reports had emerged of young, financially inexperienced troops being pushed into predatory car loans by dealerships near military bases.
The administration also lobbied against the exemption for auto dealers. President Barack Obama issued a rare public statement opposing it.
"An auto loan is like any other loan," said Lauren Saunders, managing attorney of the National Consumer Law Center, which has argued cases on behalf of minority car buyers who complained that auto dealers discriminated by giving them higher-cost loans. "The auto dealers are a very powerful political lobby, and at the end of the day, that is what won."
Dealerships nationwide number about 18,000. And nearly 8,000 community banks dot the country.
"They have that incredible grass-roots power, and that's why they got the loopholes and the carve-outs they did," said Ed Mierzwinski, consumer program director at U.S. Public Interest Research Group.
The auto dealers' successful argument to Congress — don't punish Main Street for Wall Street's sins — was echoed by community banks. Community banks, which include thrifts and depositor-owned banks, cater to homebuyers, developers, small businesses and farmers, among others.
Yet small banks don't necessarily mean small risks. A wave of failures has battered community banks: They account for nearly all the 226 banks in the U.S. that have failed since the start of 2009.
Commercial real estate
Losses have mounted on loans for commercial real estate, such as stores and office complexes. As more buildings sit vacant and builders default, regional and small banks could face $200 billion to $300 billion in losses over the next few years, according to the Congressional Oversight Panel, which is overseeing the financial bailout. Hundreds more banks could fail as a result.
The Independent Community Bankers of America spent nearly $1.1 million in the first quarter on lobbying on bank regulation, the new consumer protection bureau and other issues. That was 15 percent more than it spent in the first quarter of 2009. It spent $1.36 million on lobbying in the fourth quarter of last year.
The community banks' influence goes beyond those dollar figures. Local bankers are big donors in hundreds of congressional races that will be decided this fall. They supplemented their trade group's spending with visits and phone calls.
That pressure helped the community banks score separate victories in the legislation. Among them: Congress will raise fees that banks pay into the Federal Deposit Insurance Corp.'s fund. But the rate increase will apply only to banks with assets greater than $10 billion. Smaller banks were spared.
The NADA has also increased its lobbying. It began lobbying on the dealer exemption in the third quarter of 2009. It spent a recent high of $896,000 in the fourth quarter, though that amount included lobbying on other issues, too.
As with community banks, pressure from individual auto dealers helped sway Congress. Such phone calls and visits aren't required to be reported as lobbying.
Consumer advocates hold out hope for extending the bureau's full oversight to auto dealers and community banks. They note that Congress preserved the Federal Trade Commission's authority to fight deceptive practices by dealers.
They also say they've raised awareness of the issues with lawmakers — groundwork for future regulation.
"We lost a couple of battles," Mierzwinski said, "but we won the war."