In Auto Finance News (sorry, no link), Michael Benoit reports that
A hot topic with Consumer Financial Protection Bureau staff at the most recent Federal Trade Commission roundtable revolved around the restrictions in retail installment sale contracts for moving collateral out of the country. In short, the CFPB thinks it’s a problem that service members can’t take their financed vehicles with them when they get deployed overseas. [Emph. added]
And here we were worried the CFPB might micro-regulate consumer lending! The agency’s only two months old, and it’s already obsessing over an issue so trivial that, to the best of my knowledge, no one even thought to bring it up at the height of the anti-consumer-lender hysteria that happened in the runup to the passage of Dodd-Frank: whether borrowers can take cars they’ve financed with them when they go abroad. How many people can this restriction realistically affect in any given year? I don’t seem to remember Elizabeth Warren even bothering to mention the issue in any of her jeremiads, and she had the waterfront pretty much covered. But that’s why we have government protection agencies: they conjure up new “problems,” and then “fix” them -- usually at a steep cost to the consumer who’s supposedly being helped.
The reasons auto lenders won’t let borrowers take financed autos overseas are so blindingly obvious that I can only hope you’ll forgive me if I go ahead and spell them out anyway. First, liens aren’t necessarily enforceable in foreign jurisdictions. Second, insurance law and regulation tend to be different overseas than they are here. So, for that matter, is auto regulation generally. At a minimum, shipping collateral to a different country makes it more expensive for an auto lender to enforce its rights. At a maximum, the lender can lose some of those rights altogether. Can you blame companies for wanting borrowers to keep their cars stateside?
If the CFPB has already gotten so far down into the weeds that the agency is dealing with borrowers’ international auto shipping rights, it’s time to start worrying. This is an agency, remember, with a vast budget ($500 million per year, which comes directly from the Fed with little Congressional oversight) and nearly an unlimited regulatory purview. If it has to do with consumer lending, the CFPB can get involved, if it wants to. On the available evidence, the CFPB means to get involved in everything.
That’s bad. Go back to auto lending, to see why. If the CFPB ends up writing a rule that forbids lenders from prohibiting borrowers from sending their financed vehicles overseas, the result will be entirely predictable: the cost of auto loans to consumers will rise. That’s been the case, so far, with every other recent consumer lending reform. Let’s call the roll:
- The Durbin Amendment, which caps interchange fees on debit cards. Result: debit cards rewards programs have been eliminated or drastically curtailed, with no offsetting decline in retail prices.
- The CARD Act, which restricts pricing and term flexibility of credit card lenders. Result: credit card credit is now less available generally, and more expensive, than it was before the CARD Act was passed.
- The Federal Reserve rules restricting banks’ overdraft protection services. Result: the “free checking” option has disappeared; fees on checking accounts are proliferating.
Need I go on? I’m having a tough time seeing how higher prices and reduced access to credit — which is what new layers of regulation of consumer lending tends to produce — is a good thing for consumers. And based on what the CFPB is up to in these early rounds, this is only the beginning.
Update: This truly is a non-issue. On its website, USAA, the lender that caters to military personnel, veterans, and their families, says that “unlike most banks, we let you ship your car overseas when you have a permanent change of station. “ So what’s the problem again?