NEW YORK (CNNMoney.com) -- A measure under consideration in the Senate would shield auto dealers from a package of proposed financial rules aimed at protecting consumers.
Currently auto dealers are regulated by a host of state and federal consumer protection rules that prohibit practices such as "bait and switch" lending and loans packed with undisclosed extras such as extended warranties.
At issue on Capitol Hill is an amendment to the massive Wall Street reform bill headed toward final resolution.
The amendment would prevent a proposed Bureau of Consumer Financial Protection from regulating auto dealers' practices when arranging loans for consumers.
President Obama strongly opposes the amendment.
"[T]hese lenders should be subject to the same standards as any local or community bank that provides loans," Obama said in a statement on Wednesday.
The amendment, offered by Sam Brownback, R-Kan., is supported by auto dealers who argue that more regulation would stifle consumer access to car loans.
The vast majority of dealers do not actually lend their own money to customers, but only arrange financing. That gives dealers an incentive to help their customers get affordable loans, said Bailey Wood, a spokesman for the National Automobile Dealers Association.
"As a dealer, I can sell you more car if your monthly rates are lower," Wood said.
Of the roughly 11.5 million passenger vehicles that will be sold this year, about 70% will be financed or leased through a dealership, according to the automotive Web site Edmunds.com.
Financial products are a significant profit driver for dealerships. Dealers typically are paid about 1.5% of the amount of a loan, Wood said.
Another layer of regulation could force some dealers to stop arranging financing for customers, Wood argued. "If providing this optional service to their customers -- and I stress it's optional -- is no longer cost effective, they'll simply say 'I am no longer providing in-dealer financing,' " said Wood.
Raj Date, executive director of the Cambridge Winter Center for Financial Institutions Policy, agreed that the additional regulation might cause some dealers to stop arranging loans.
"There will be some dealers who say 'If I have to play by an honest of set rules, then I can't be in this business anymore,'" Date said. "I'm not going to shed any tears for these dealers."
Existing regulations in most states don't do enough to clamp down on abuses by auto dealers, said Ed Mierzwinski, director of federal consumer programs for the Public Interest Research Group, a consumer advocacy organization.
The new federal agency would be better equipped to collect on-going information and regulate dealership practices, Mierzwinski and Date said.
Most customers who finance their cars through auto dealers don't, ultimately, know how much the loan is costing them and how big a cut the dealership is getting, Date said.
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