Consumer advocates had hoped that auto dealers would be included in pending legislation to create a new consumer watchdog agency. But a grassroots effort pushed by dealers and their leading trading group, the National Automobile Dealers Association (NADA), resulted in members of the House Financial Services Committee on Thursday voting 47 to 21 in favor of an amendment to exclude auto dealers.

The successful effort was led Rep. John Campbell (R-Calif.), who argued that auto dealers aren't financial organizations and shouldn't be regulated by a bill that would create a "financial" protection agency for consumers. But the group of some three dozen consumer and civil rights organizations doesn't see it that way, arguing that arranging on-site financing for vehicle purchases are a big source of profits for car dealers.

Further, the group argued that current auto dealer practices are rife with abuse and lead the list of complaints filed with local and state consumer agencies by disgruntled customers. Among the shady practices the group highlighted are those such as bait-and-switch financing, falsification of credit applications, "loan packing" -- deceptive sales of overpriced add-on items, which may include features as frivolous as paint stripes -- and charging excessive interest rates or dealer markup.

Many of the scams closely parallel the abuses and predatory practices that led to the mortgage meltdown, the group said.

Though the auto-dealer exemption was approved and the larger bill was voted out of House committee, the NADA is continuing lobbying efforts to ensure that dealers remain exempt, saying the "bill still has a number of hurdles to overcome before reaching the White House for final approval."

The Obama administration, which is pushing the consumer-protection legislation, opposed the auto dealer exemption, which also extends to retailers and title-insurance providers. Companies that actually provide the auto loans themselves would not be left out of the pending legislation, which passed on a largely party line vote in committee, 39 to 29.

Among other changes to the legislation was one to allow 98 percent of the banking industry, comprised of some 8,000 community banks and credit unions, to keep their current regulators when enforcing new consumer rules.

Still, President Obama said the House bill, which would create a regulator to oversee mortgages and credit cards, was a step forward.

"This bill has now passed a major hurdle and this step sends an important signal to the American people that we will not stand by and allow big financial firms and their lobbyists to mobilize against change," the president said in a statement.

Democrats vowed to fight for reinstatement of some of the excised provisions when the legislation hits the House floor. Financial Services Committee Chairman Barney Frank (D-Mass.), speaking at a press conference Thursday, said he and other Democrats would fight to reinstate provisions to regulate the financing products of auto dealers as part of the House bill.


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