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Car Loans, Mortgages Not Really the Same

Automotive News’ special correspondent Jim Henry wrote Wednesday that the Consumer Financial Protection Bureau (CFPB) leans towards equating auto dealers and mortgage brokers “using questionable logic.”

According to Henry, CFPB sees the similarity between dealers and brokers as both act as third party who can mark up the interest rate they will charge consumers. Greater markups translate to more profit for them.

However, Arthur Baines, vice president of a consulting firm Charles River and Associates (CRA), does not agree with how CFPB compares auto loans and mortgages. He said that “they’re very different.”

In his interview with Henry he said that the two transactions may begin to look the same in the case of a home buyer who is purchasing a new house from a mortgage broker’s inventory. The broker is not only arranging financing for the buyer but is also purchasing the buyer’s existing house. And the buyer calls the mortgage broker after a year to have roof problems fixed.

Baines and his colleague Marsha Courchane have explained this in their whitepaper published last month in CRA’s website.

“In a vehicle purchase, the dealership and the consumer are simultaneously pricing multiple products and services in a single transaction, while the mortgage broker and the consumer price a single product in a transaction that is dependent on a series of related but separate transactions. Both markets are highly complex, but starkly different. “

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