The Consumer Financial Protection Bureau is out with advice that calls for consumers to directly get their used car financing straight from lenders and not go through dealerships because in most cases they're going to pay more.

The bureau said in a bulletin issued on March 21, 2013 (in case you have trouble finding it in the future).

The CFPB states, "While consumers may seek financing for automobile purchases directly from a financial institution, many seek financing from the auto dealer.

The auto dealer may provide that financing directly or it may facilitate indirect financing by a third party such as a depository institution, a nonbank affiliate of a depository institution, an independent nonbank, or a "captive" nonbank (an auto lender whose primary business is to finance the purchase of a specific manufacturer's automobiles)."

That markup allows dealers to do questionable things, according to the CFPB. It said, "The supervisory experience of the CFPB confirms that some indirect auto lenders have policies that allow auto dealers to mark up lender-established buy rates and that compensate dealers for those markups in the form of reserve (collectively, "markup and compensation policies"). Because of the incentives these policies create, and the discretion they permit, there is a significant risk that they will result in pricing disparities on the basis of race, national origin, and potentially other prohibited bases."

Further troubling is the discretion these loans have once the dealers get involved.

Apparently, there is a belief from organizations like the National Automobile Dealers Association (NADA) and that dealers aren't lending institutions and are exempt from having to follow discrimination guidelines.

According to an article at SubPrimeNews.com, NADA and [National Association of Minority Automobile Dealers] NAMAD took exception to the CFPB's assertion, insisting how dealers provide critical assistance in the vehicle-financing process.

"The guidance issued by the CFPB attempts to force auto finance sources into changing the way they compensate dealers without any indication that the bureau has examined the effect this change could have on the cost of credit for consumers," association officials said. "The dealer-assisted financing model (indirect auto lending) has been enormously successful in both increasing access to, and reducing the cost of, credit for millions of Americans. Consumers overwhelmingly choose optional dealer-assisted financing because it's convenient and competitive.

"The CFPB's attempt to eliminate the dealer's ability to discount the APR that it offers to consumers will only weaken the consumer's ability to secure financing at the lowest possible cost," the article continued. "This anti-competitive approach is not in the interests of consumers and should not be accomplished through guidance and enforcement actions that lack transparency, the opportunity for public comment, and the benefits of a data driven analysis into the effects they would have on consumers and the automobile financing marketplace.

"It also should not be accomplished without the full participation of the Federal Reserve Board and the Federal Trade Commission, which are the two agencies that Congress vested with authority over auto dealers engaged in indirect lending," the associations said in the SubPrimeNews.com article.

The CFPB has good advice for consumers in the form of ideas it presented to dealers using these loan mark-up programs. It said another important tool for limiting fair lending risk in indirect auto lending is developing a robust fair lending compliance management program. It set out the following features of a strong fair lending compliance program that are applicable in the indirect auto lending context (and would greatly benefit consumers):

• an up-to-date fair lending policy statement;
• regular fair lending training for all employees invol ved with any aspect of the institution's credit transactions, as well as all officers and Board members;
• ongoing monitoring for compliance with fair lending policies and procedures;
• ongoing monitoring for compliance with other policies and procedures that are intended to reduce fair lending risk (such as controls on dealer discretion);
• review of lending policies for potential fair lending violations, including potential disparate impact;
• depending on the size and complexity of the financial institution, regular analysis of loan data in all product areas for potential disparities on a prohibited basis in pricing, underwriting, or other aspects of the credit transaction; and,
• regular assessment of the marketing of loan products; and meaningful oversight of fair lending compliance by management and, where appropriate, the financial institution's board of directors.

There's an article on buying a used car that has advice on getting preapproved for a used car loan. It's always a good idea and what the CPFB has determined goes a long way towards proving that need.