Le-Eunice L'Minggio of Delavan, Wis., getting by on modest disability checks from Social Security, needed a car for regular weekly visits to her aunt on Chicago's South Side.

The sales team at Thrifty Car Sales of Melrose Park, Ill., helped her pick out an $8,000 2004 Ford Freestar station wagon with a cracked mirror, a busted bumper, a broken taillight covered in tape and wipers that clawed the windshield, USA Today reported.

After she signed some papers, made a $1,200 down payment and drove home in the Freestar, things started to get weird. The dealership's finance manager summoned her back a few days later and told her that she needed to lie to the finance company to get a loan. Specifically, he wanted her to say she was working at a steel mill for $5,000 a month. When she refused, he demanded full payment for the wagon. She returned the Freestar instead, but the dealership wouldn't give her back her down payment.

L'Minggio, 64, went to federal court and won $13,200 in damages. But the dealership had gone out of business. "We were unable to collect the judgment," says her lawyer, Michelle Weinberg.

Car shoppers such as L'Minggio might soon have a new advocate when they start to talk financing at their local car dealerships. Congress on Thursday began working on a final version of sweeping financial reform legislation that could subject auto dealerships to regulation by a new consumer financial protection agency. If the measure survives, dealers' F&I (finance and insurance) staff would be regulated like bankers and mortgage brokers.

The powerful auto dealers' lobby is fighting back. "Main Street auto dealerships should not be in a Wall Street reform bill," David Regan, vice president of legislative affairs at the National Automobile Dealers Association, said in a statement last week. "Auto dealerships are not banks." The association warns that new regulation would drive up the cost of auto loans.

Auto dealers last year persuaded the House of Representatives to exempt them from regulation by the new consumer financial protection agency. But the Senate version of the reform bill would let the new agency crack down on abusive auto-lending practices at dealerships. Now, envoys from the House and Senate are trying to work out differences between their two versions. And the lobbying has resumed in earnest.

In a report last year, the Cambridge Winter Center for Financial Institutions Policy concluded that exempting auto dealerships would be a "step in the wrong direction for consumer protection in auto finance." The non-partisan think tank noted that auto dealerships originate 79% of auto loans and leases and "that auto finance is demonstrably susceptible to unfair and deceptive practices."

Moreover, Cambridge Winter argues that an exemption would give auto dealerships' finance departments an unfair advantage over credit unions and small banks, which would face regulation. Not surprisingly, credit unions and community banks want to see auto dealers treated like any other lender. "What they do is fundamentally the same as what a mortgage broker does," says Steve Verdier, director of congressional relations at the Independent Community Bankers of America.

"The dealers all say, 'We don't get involved in financing,' " says Virginia lawyer Robin Abbott. "Nothing could be further from the truth."

Avoiding Embarrassment

The finance departments at auto dealerships check car buyers' credit histories and market and price loans that end up being made by banks or the finance arms of auto manufacturers such as General Motors or Toyota. Dealers "routinely mark up loan offers, typically collecting the equivalent of half of the resultant excess finance charges as bounty," Cambridge Winter reported.

Abbott says some of her clients have fallen victim to one of the most common scams in auto lending — the "yo-yo" financing trap.

It works like this: A car buyer, usually with an iffy credit history, comes into the dealership, trades in a car, reaches what he thinks is an agreement on loan terms, and drives away in his new car. What the happy car buyer probably doesn't realize was that among the many papers he signed was one acknowledging that the deal was contingent upon a third-party lender approving the financing. A few days or weeks later — if the dealer hasn't found a willing lender — the buyer gets a call summoning him back to the dealer to negotiate a new loan or return the car.

Many consumers will agree to tougher loan terms to avoid embarrassment after showing off the new car to their friends.

"Don't let the manager ... keep you from being able to read the documents, telling you just to 'sign here,' " says Rosemary Shahan, president of Consumers for Auto Reliability and Safety in Sacramento. "Take the filled-out forms and go sit down and ... pore over them. You may find that you negotiated a good deal verbally, but what is in writing could be very different. ... If they switched the terms on you, walk away."

Consumer advocates say unscrupulous dealers prey disproportionately on young, financially unsophisticated soldiers, which is why the secretaries of the Army and the Air Force have come out publicly in favor of subjecting auto dealers to consumer financial regulation. Regan of the dealers' association rejects the charges, saying there's no proof that auto dealers target military personnel.

The legal office at Camp Lejeune in North Carolina put together a list of Marines there who have been victimized by auto dealers. Among them: a Marine who traded in a car only to learn that the dealer hadn't paid off the trade-in, leaving him with two monthly car payments and only one car.

"Outside every military base in the country, there is a string of car dealerships selling overpriced cars," says Tom Domonoske, a Harrisonburg, Va., lawyer who trains military attorneys on consumer law. Soldiers "leave home for the first time. They are making decisions with their own paycheck in a way that other 18- or 19-year-olds aren't. ... They walk on the car lot, and the car dealer takes them to the cleaners."