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The CFPA and the Auto Industry

|Includes:ACN, Automatic Data Processing, Inc. (ADP), GKM, WIT

There are a lot of people up in arms about the proposed Consumer Financial Protection Agency (CFPA). I have not had time to read through the pending financial reform legislation, so I can't say with certainty that I support every plank of the CFPA. However, it is clear that consumers' interests have not been well served by the current regulatory framework, and that something more vigorous is needed.  Even if financial services do not reascend to the commanding heights of the economy, they will continue to play a substantial role.

Lets not kid ourselves about what's gone on in recent years.  I have been heard a nasty behavioral economist quant (now at Harvard) give a talk about how effective data mining could help hedge funds understand the habits of "dumb money" (retail investors) and use this insight to separate the mass of imbeciles from their investments.  I have sat at parties and had otherwise genial ex-McKinsey people regale me with tales of how they devised credit card fee designs that would entice people to get into debt and then keep them there. I have sat in the cubicles of line-worker mortgage underwriters who were flabbergasted at the types of no-doc mortgages that were getting approved. And that was back in 2003. There have been various degrees and flavors of predation all up and down the food chain.

One argument that I have heard about a specific piece of the CFPA is utter bunk.  The auto industry is lobbying to have auto financing excluded from the agency's purview because inclusion would force dealers to hire more people and thus drive up car prices.  This is pathetic.  For one, cars in America aren't particularly expensive, and the auto industry doesn't make its money selling cars anyway.  It makes money on financing and parts, and dealers make their money on servicing. So if the initial transaction costs get driven up a hundred bucks per car, it's really no skin off anybody's back.

What's more, if dealers hire, that's job creation, which we're all really excited about. The fact is, those specific jobs won't be around for long. As we speak, ADP (which does huge business with dealers) and many others are studying the bills to figure out how to automate the jobs, just as Accenture, Wipro, and many others are working on taking the jobs offshore. When these same jobs disappear into desktops or to Hyderabad, there'll be a whole 'nother hue and cry.  But it's just business.  Here's what will happen. A few thousand jobs will be created, and new people will be brought into dealerships.  By the time their jobs are made obsolete, others jobs will be created or older workers will retire from the dealers.

It is much more ridiculous, admittedly, that we keep bailing out GMAC.

Disclosure: Indices only

Stocks: ADP, ACN, WIT, GKM