Submission Number: 00016
Received: 4/17/2011 4:47:30 PM
Commenter: Mark Cohen
Agency: Federal Trade Commission
Initiative: Public Roundtables: Protecting Consumers in the Sale and Leasing of Motor Vehicles; Project No. P104811
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As an expert witness hired by plaintiffs in numerous class action lawsuits filed against the major auto lenders, I have analyzed several million auto finance transactions. My findings have been summarized in a paper that is available to the public (at http://www.ssrn.com/abstract=951827) and is attached to this submission. This paper has been accepted for future publication in a peer reviewed journal, Review of Law and Economics. My findings can be summarized simply as: (a) consumers oftentimes pay thousands of dollars in hidden interest rate markups while being told that the dealer is shopping around finding them the best interest rates available, and (b)finance company policies that allow dealers to markup loans have resulted in a disparate impact against African-American and Hispanic auto finance customers. All of the lawsuits filed against these practices settled (with the auto lenders agreeing to limit but not eliminate markups for a three year time period) - except one case that proceeded to trial - in which the judge ruled that these policies indeed had a disparate impact. While the evidence is now several years old, I have no reason to believe that the market has fundamentally changed. While there is now better consumer access to credit and loan information and more consumers are likely aware of the need to shop around for financing before going to the auto dealer - as long as dealers are compensated under a system that allows them discretion to markup some customers and not others - and this markup is not transparent to consumers - these problems will likely persist. Further disclosure requirements might help. However, to eliminate "home run" markups of thousands of dollars to a small percentage of consumers and to eliminate racial disparity in markups would require a fixed fee or fixed percentage compensation structure whereby dealers were compensated for bringing loans to lenders without having the discretion to markup some consumers and not others.