Democratic Senator Edward Markey wants the FTC to take a more active role in policing auto dealer sales practices.  Because Dodd-Frank bars the CFPB from directly regulating auto dealers, the CFPB has targeted the fair lending practices of banks and non-banks purchasing auto finance consumer contracts from auto dealers.  In a letter sent to the FTC on October 23, Senator Markey called on the FTC to investigate whether auto dealers are using “potentially unfair or deceptive financing practices to sell cars to consumers and then take all appropriate action to address these practices to protect consumers.” 

In particular, Senator Markey alleges that because most consumers are unaware of a dealer’s ability to mark up interest rates on auto finance contracts sold to third parties, it is “very difficult to deem such surcharges as ‘fair’ compensation.”  He also takes aim at “yo-yo schemes” in which a dealer allows a consumer to take a car from the dealership before the finance contract is finalized and then demands that the purchaser return the car or accept a higher interest rate. 

Senator Markey’s letter references the FTC’s authority under Dodd-Frank to prescribe UDAP rules for auto dealers using the Administrative Procedure Act advance notice-and-comment procedures rather than the cumbersome Magnuson-Moss rulemaking procedures with which the FTC was previously saddled.  The letter includes a series of questions to the FTC regarding dealer markups and yo-yo schemes, including whether the FTC has ever brought enforcement actions directed at such practices or has data indicating that dealers are selling contracts to third parties in which they have an ownership interest.