WASHINGTON – The nation’s 18,000 auto dealers are trying to cut themselves a deal in the Senate, seeking exemption from proposed consumer regulations that would police how they write car loans.

The Obama administration is pushing back, using the Pentagon to make the case that soldiers are particularly vulnerable to high-interest car loan schemes.

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A customer shops for a car in Montpelier, Vt. Auto dealers say extra regulations in new legislation will simply create additional costs that would be passed on to consumers. 2010 Associated Press file

“No one counts the car dealers out,” said Ed Mierzwinski, consumer program director at U.S. PIRG, a consumer advocacy group. “The car dealers are like the small banks — they are everywhere.”

The dealers argue that when it comes to lending to car buyers, they are mere intermediaries for financial institutions that ultimately process and service the loans.

In waging this fight, they stand between the president and the success of a vast rewrite of financial regulations that Obama is determined to sign into law. A House version of the bill already excludes auto dealers from new consumer financial rules. standing firm now, the administration hopes the Senate version prevails.

The debate over a special carve out for auto dealers, who have a high visibility in their local communities, comes as Senate Majority Leader Harry Reid, D-Nev., seeks to wrap up debate over the broader regulatory overhaul later this week. Reid planned to seek a vote to end debate Wednesday, which would require 60 votes to pass. If successful, the Senate would have until Friday to dispatch remaining issues.

Beside the auto dealers’ exception, senators must still work out differences over how to regulate complex securities known as derivatives and decide whether to toughen provisions in the bill that would restrict the ability of banks to engage in speculative trades with their own accounts.

Sen. Sam Brownback, R-Kan., is leading the effort for the dealers with an amendment that would specifically carve them out of the bill’s consumer protection provisions. While the American auto industry is reeling economically, the last thing dealers need is additional regulations, their allies argue.

“If a dealer is acting more as a pass-through between the consumer and the bank, simply adding more burdensome regulations on the dealer will only make it more expensive for the consumer,” said Bailey Wood of the National Automobile Dealers Association.

Auto dealers, however, still make money from the loans. Consumer advocates argue that’s enough to place them under extra scrutiny. The Pentagon has been especially aggressive in opposing an exemption for auto dealers, initiating its campaign after the House agreed to exclude dealers from its bill.

In February, Undersecretary of Defense Clifford Stanley wrote to the Treasury, saying that nearly three out of four military financial counselors in “informal, nonscientific polling” reported that they advised service members on issues related to abusive auto financing.

Last week, Brownback wrote Stanley asking him for details on the reports from the military financial counselors. “Is it the position of the department that auto dealers pose a specific threat to military readiness?” Brownback wrote.

Army Secretary John McHugh weighed in with a letter last week to Senate Banking Committee Chairman Christopher Dodd, D-Conn., voicing his objection to Brownback’s amendment.

Holly Petraeus, wife of U.S. Central Command chief Gen. David Petraeus, also joined the fight. As director of the Council of Better Business Bureau’s Military Line Program, she reiterated Stanley’s assertions that many service members are in financial trouble with their auto payments, locked into loans with interest rates of 15 percent or higher.

Dodd has argued that even in assembling financing for customers, car dealers should not escape the same regulations as others who help write loans.

“It is crucial that auto dealers, in the financing of autos, play by the same rules as their competitors do in communities all across our country,” he said.

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