Why the Auto Dealer Exemption Was a Bad Idea

Last year, the U.S. government bailed out auto giant GM at a cost of around $50 billion, gaining 61 percent of the company in the process and expecting around $20 billion in eventual losses. The government also bailed out its lending arm, GMAC, at an upfront cost of $17.2 billion and an expected eventual cost of $6 billion.

Today, backed by that taxpayer largess, GM paid $3.5 billion to purchase a subprime lender, meaning GM will pay taxpayers back in part by selling them more cars at less advantageous interest rates. Plus, Felix Salmon notes, GM did not even get a good deal on the company: “[T]he government is now using taxpayer money to buy out AmeriCredit’s shareholders at a 24 percent premium to Wednesday’s closing price.”

The incident underscores how pointless the auto dealer carve-out in the financial regulatory reform bill is, as well. As a standalone company, in a matter of months, AmeriCredit would have come under the regulatory oversight of the new Consumer Financial Protection Bureau. CFPB regulators would have prevented it from using the industry’s worst practices — bait-and-switch scams, hiding fees and interest rates in the small print, selling unnecessary insurance products or offering subprime loans to prime-qualified customers. But, since GM bought AmeriCredit and will roll its services into the company’s auto dealerships, the CFPB will not be able to do so.