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Jennifer Waters's Consumer Confidential

July 21, 2010, 12:01 a.m. EDT · Recommend (3) · Post:

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Want a new car? It's a great time to buy

At Morgan Stanley, it's not just the comparables

By Jennifer Waters, MarketWatch

CHICAGO (MarketWatch) -- For all the consumer protections that the sweeping and historic financial-regulations bill puts in place, there are two major loopholes that should serve as a warning to consumers that predatory lending will not disappear.

The new law exempts auto dealers and community banks from the auspices of the consumer-protection bureau. Though the two industry groups account for billions of dollars in loans and touch the lives of tens of millions of people, they managed to wriggle free of the scrutiny under which other lenders find themselves.

A one-day driving class put on by BMW near Washington, D.C., gives some teenagers a chance to test the limits of their skills in ways that one day could save their lives. WSJ's Joseph B. White reports.

Among the more controversial loopholes in the bank-reform bill was the so-called "carve out" that auto dealers won, keeping the consumer-protection watchdog at bay. After arguing they were not responsible, even remotely, for the financial meltdown that left thousands of people jobless and homeless, auto dealers' financing activities continue, business as usual. The same goes for companies who sell boats, motorcycles and RVs.

Consumer groups and a number of heavy-hitters including the White House, Pentagon and Treasury Department, held little sway compared with strong lobbying from local dealers -- there are 18,000 of them nationwide. Though nine out of 10 auto loans is financed through a financial institution, dealers act as the middle men some 80% of the time, according to J.D. Power & Associates. Some consumer-advocacy groups say that leaves open the opportunity to push high-interest loans on unsuspecting consumers.

Meanwhile, community banks managed to convince Congress that they are somehow completely different than big banks. Yes, it's true that community banks are not simply smaller versions of big banks, and they may be a better banking alternative for many consumers. They typically don't charge the same fees the big boys do, nor do they have the same deep pockets. And they are the lifeline for many small businesses now that big banks have pulled back on lending.

So it makes sense that some of the new law's provisions single them out. For instance, community banks are exempt from paying the higher Federal Deposit Insurance Corp. premiums that big banks must fork over to increase the insurance fund. And community banks are allowed to count some trust-preferred securities toward their capital standards, which under the new law big banks can't do.

"These and several other concessions establish the congressional policy for tiered regulation that recognize Main Street community banks as having a different banking model from large and internationally active institutions," the Independent Community Bankers of America said in a statement. The ICBA represents more than half of the 8,000 community banks nationwide.

ICBA was among those that fought hard for an exemption from the new consumer bureau. Though the law urges banks with assets under $10 billion to follow the bureau's lending regulations, it doesn't require them to do so.

That leaves the door open for loan scams.

Addressing those concerns, ICBA recently posted on its website,, tips to help consumers guard against loan scams. Here are some of them:

Be wary of guarantees to stop the foreclosure process, no matter what your circumstances.

Always contact your lender, lawyer or credit or housing counselor, no matter what a company says.

Never give up money before you've gotten a service.

No reputable company will ever encourage you to lease your home so you can buy it back over time.

No reputable firm will tell you to make your mortgage payments directly to them rather than your lender.

Morgan Stanley had an easy quarter to make, writes David Weidner.

10:53 a.m. Today10:53 a.m. July 21, 2010 | Comments: 8

Loopholes to create different rules for different capped banks... There are so many regulatory agencies for banks.... Crazy.... I believe that this was actually done by bureaucrats who do not want to lose jobs by consolidating the agencies. They are all in one big black hole with lobbyists to complicate matters and loopholes to run scams and schemes.Car sales and financing people do not..."

- TinyMighty | 3:01 a.m. Today3:01 a.m. July 21, 2010

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