California regulators established new rules on Friday that require dramatic cuts in emissions from most cars and trucks by 2025.

The new “advanced clean cars” regulations, adopted in a unanimous vote by the state Air Resources Board, requires cars and light trucks sold in 2025 to emit 75 percent fewer smog-forming pollutants and reduce carbon dioxide by about a third, reported The Wall Street Journal.

The program envisions that 1.4 million, or one in seven, new cars sold in California in 2025 will run on electricity or hydrogen and produce no emissions, or run on electricity and gasoline to produce much lower emissions than conventional gasoline-fueled cars.

The rules would apply to cars and light trucks for model years 2017 and later.

Auto makers said they are already making electric and hydrogen-fueled vehicles and support the rules. But they worried about whether enough electric and hydrogen fueling stations would be widely available throughout California, which they said is a requirement for widespread consumer adoption of zero- and low-emission vehicles.

“Auto makers have invested massive sums of money to bring these vehicles to market, so we have a huge stake in trying to sell them,” said Gloria Bergquist, a spokeswoman for the Alliance of Automobile Manufacturers, a trade group. “The success depends on the fueling infrastructure being available so consumers will buy them.”

The alliance represents General Motors Co., Ford Motor Co. and other manufacturers, all of whom deferred to the trade group for comment.

Auto makers believe that since the state has mandated that their industry build and sell zero- and low-emission vehicles, it’s only fair for the state to require fuel retailers to make electricity and hydrogen widely available so that consumers will buy and drive the cars, Ms. Bergquist said.

But refiners and service station owners don’t see it that way.

Oil refiners and fuel importers oppose a rule that requires them to put hydrogen-fueling equipment at service stations, most of which are independently owned by other companies, said Cathy Reheis-Boyd, president of the Western States Petroleum Association.

“We refine gasoline and diesel and we do not believe it’s appropriate for refiners and importers to be obligated to put hydrogen infrastructure at retail gas stations that we don’t own,” Ms. Reheis-Boyd said.

Service station owners also don’t want to be required to install hydrogen-fueling equipment, over concerns that they could lose money on the investment.

Instead, both industries have proposed that the government provide subsidies to install hydrogen-fueling equipment, at least in the early years of the clean cars program.

State officials said the clean car rules would be similar to a federal proposal to boost fuel efficiency standards for most cars and trucks. The Obama administration has discussed the proposed rules, but has not formally proposed a set of regulations.

ARB Chair Mary Nichols said California’s clean-car rules would be essentially the same as the expected federal rules, with possible slight differences.

“We’re not seeing any fundamental differences with the federal government in fundamental philosophies,” Ms. Nichols told reporters on Friday. “I don’t think the delay will have a negative impact on the auto industry at all.”

The rules are the latest version of regulations originally adopted in 1990 to improve air quality in California, which has some of the nation’s dirtiest air.

This time, the clean car rules include limits on greenhouse-gas emissions, in line with the state’s 2006 plan to combat climate change.

Consumer groups, environmental groups and local government agencies that oversee air quality lauded the new rules.

“ARB’s decision is a victory for California residents, where 90 percent of the public still live in areas of unhealthy air,” Simon Mui, a scientist with the Natural Resources Defense Council, wrote in a blog post. “With all major auto makers already launching or planning to offer in total 30 to 40 plug-in electric vehicle models, these standards will help scale-up and pull forward technologies already available today.”

The regulations include a provision under which the ARB would take another look at how the rules were working and whether changes might be needed to reach the goals of the program.

The Air Resources Board has estimated that the rules will add an average of $1,900 to vehicle prices, which the agency said would be offset by savings on fuel purchases that would average about $6,000 over the life of the car.

Auto dealers have countered that the rules could boost the car prices nearly double what the ARB estimates, and hurt growth in the market.

SACRAMENTO — California State Assembly Member Mike Feuer (D–Los Angeles) and State Sen. Ted W. Lieu (D–Torrance) have proposed legislation that would introduce new rules designed to “rein in abusive practices” of buy here, pay here dealers statewide. The announcements followed a series of articles by Los Angeles Times reporter Ken Bensinger that sought to shed light on used-car lots and the customers who frequent them.

“This industry preys on people who have no other options for getting a car,” Feuer said. “In many parts of our state, auto travel is the only way for parents to get to work on time, or to pick their kids up from school. Instead of helping Californians get back on their feet by providing needed transportation, these dealers are promoting an endless cycle of debt and joblessness.”

Feuer’s bill, AB 1447, would require dealers to display each vehicle’s price on the vehicle itself, prohibit dealers from requiring that customers pay them in person, prohibit dealers from contacting a buyer’s references once a sale is completed, and prohibit them from installing payment assurance devices, including GPS tracking and starter interrupt devices.

A second proposal from Sen. Lieu would require dealer financiers to obtain a California Finance Lender’s license, cap auto loan interest rates at 17.25% and introduce mandatory grace periods for repossessions.

The announcements drew swift condemnation from Kenneth Shilson, founder of the National Alliance of Buy Here, Pay Here (NABD) dealers, who described Feuer’s bill as “the most intrusive proposal I have ever seen.”

“They’re looking to regulate BHPH and disallow payment devices,” Shilson said. “That runs to the perception that the transaction is abusive and the device is an invasion of the consumer’s privacy. It’s not. Lenders have the right to protect their collateral.”

Shilson said Bensinger contacted him about a year before the first article was published. He said he was dismayed to find that the series was “totally one-sided,” focusing on hard-luck stories from BHPH buyers and the high interest rates and multiple repossessions inherent to the segment. The series gave little voice to dealers, Shilson said, noting that high interest rates are a reflection of the risk each dealer is taking on when financing “unbankable” customers.

Last year, at the NABD’s first East Coast dealer conference in Atlanta, Shilson met with a senior member of the newly formed Consumer Financial Protection Bureau (CFPB). The member will be in charge of the agency’s installment lending division and attended the conference on a fact-finding mission.

“He told me that what he took away from the Times series was that BHPH is providing transportation that the government can’t,” Shilson said. “In other words, if you can’t qualify for a traditional loan, we don’t have the public transportation infrastructure to get you to work.”

Legislation aimed at amending a California law that barred a key GAP feature is moving quickly through the state Legislature, raising the prospects of the issue being resolved by June.

The bill (AB 125), spearheaded by OwnerGUARD Corp., was passed by the state Assembly by a 69-0 vote. The San Diego-based F&I product provider, working closely with the California New Car Dealers Association (CNCDA), is hoping the bill will follow a similar path through the state Senate and be on Governor Jerry Brown’s desk by June, reported F&I and Showroom.

“Frankly, everything’s happened quicker than we thought,” said Michelle Dicks, the company’s general counsel. “Hopefully, it’ll get to the [Senate Banking Committee] by the middle of March. If that happens, we could see a vote on the Senate floor a week later, which means we could be done by the end of March, beginning of April.”

Based on a law that took effect on Jan. 1, California dealers are prohibited from selling deductible coverage through GAP if they have not obtained an agent’s license. The California Department of Insurance has agreed to delay enforcement of the requirement in the law to have updated agreements through March 31.

The issue stems from an Omnibus bill (AB 2782) Gov. Arnold Schwarzenegger signed last September. It packaged, among other things, a new licensing requirement for sellers of accident and health insurance. How GAP got thrown into the new requirement is a case of unintended consequences.

Less than a month before the law took effect, the CNCDA asked the state’s insurance department to clarify whether a GAP waiver would fall under the new requirement. In its review of the law, the state agency determined that GAP waivers could no longer cover a customer’s deductible.

The CNCDA and OwnerGUARD moved quickly to get the state agency to reconsider its stance. And after extensive talks, the agency agreed to work with the association and the company on fixer legislation. The two organizations also received help from various industry associations, including the Guaranteed Asset Protection Alliance, the American Financial Services Association and the Consumer Credit Industry Association.

“Initially, the department of insurance said, ‘Fine, we know it’s a problem, so we’ll give you a moratorium on enforcement of the law,” said Dicks. “We still can’t cover the deductible and we have until March 31 to get new forms printed, but we’re getting closer to a resolution.”

The end of March also became the unofficial deadline for the fixer legislation to get through the California State Legislature. If the association and OwnerGUARD are unsuccessful at capturing the attention of lawmakers – which are embroiled in a bitter fight over the state budget – Dicks said it might be until September before any action can be taken.

That’s one of the reasons why OwnerGUARD turned to John Norwood, a noted California lobbyist who specializes in the state’s insurance and financial sector.

Working closely with the CNCDA and California Financial Services Association, Norwood was instrumental in getting the Assembly Insurance Committee to place an urgency clause in the bill when it passed the legislation by a unanimous vote. With the urgency tag, the bill can become law once it receives Gov. Brown’s signature. Without it, the bill wouldn’t take effect until Jan. 1, 2012.

“A lot of it has been John’s ability to get these people to listen. He’s done a phenomenal job,” said Dicks. “We did spend a lot of time with him initially so he could understand what we were proposing, but I think assembly members were willing to help once they understood what we were trying to do.”

In 2010, we saw many changes to federal and state laws affecting various segments of the financial services and insurance industries. These changes took the form of legislative enactments, or revisions to existing legislation, and a number of note worthy court decisions affecting vehicle service contracts. While some of these recent developments in the law expressly targeted vehicle service contracts, other changes tangentially affect the vehicle service contract industry, as a whole.

Either way, as outlined below, some of these changes will inevitably affect the way vehicle service contract providers currently conduct business, as they respond to these changes to existing laws and new regulatory requirements.

Newly Enacted Federal Legislation

Any service contract provider involved in the financial services, insurance or related industries should understand how, if at all, The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd Frank”) may affect its business.

Enacted in law on July 21, 2010, Dodd Frank is primarily a banking and investment business oriented piece of legislation; however, it also affects certain aspects of the insurance industry and could impact the vehicle service contracts business particularly to the extent this business is not considered to be the business of insurance.

Consumer Financial Protection Act of 2010
Title X of Dodd Frank, also known as the Consumer Financial Protection Act of 2010 (“CFPA”), establishes a new federal agency called the Bureau of Consumer Financial Protection (the “Bureau”). Many of the consumer protection powers of the Federal Reserve, Federal Deposit Insurance Corporation, Office of Comptroller of the Currency and Office of Thrift Supervision will be transferred to the Bureau, which has broad rule-making authority and regulatory oversight for a wide range of consumer oriented financial products and services.

The Bureau will supervise persons who offer or provide a consumer financial product or service. A consumer “financial product or service” means certain financial products or services that are offered for use by consumers primarily for personal, family, or household purposes.

In addition to the laundry list of what could be deemed as “traditional” financial products and services included within the purview of the CFPA, the Bureau is also permitted to expand its regulatory oversight to “other products or services as may be defined by the Bureau by regulation, if the Bureau finds that the product or service (a) has the purpose of evading any Federal consumer financial law, or (b) is permissible for a bank or BHC to offer to or provide under Federal law or a regulation that has, or is likely to have, a material impact on consumers.

Currently, the business of insurance is not included within the definition of a financial product or service, which reflects the maintenance of the states’ purview of the regulation of insurance under the McCarran-Ferguson Act.

For purposes of the CFPA, the “business of insurance” means writing insurance or reinsuring of insurance risk. Thus, to the extent that a particular aspect of the vehicle service contracts business is the business of insurance, the CFPA does not apply; however, for any part of the vehicle service contracts business that is not considered to be the business of insurance, the CFPA could be applicable.

Most states in which vehicle service contracts are regulated subject these contracts to regulation in their insurance codes but do not treat vehicle service contracts as insurance; although there are some key differences in how states do this. Some states’ vehicle service contracts laws provide that vehicle service contracts are not insurance in any respect, and while they are regulated within state insurance codes, they are wholesale exempted from all other provisions of the insurance code.

In contrast, other states exempt vehicle service contracts only from certain, but not all, provisions of the insurance code, leaving open the question of whether they are the business of insurance even though they are not fully regulated as an insurance product.

Thus, for purposes of the CFPA to the extent that vehicle service contracts are exempted in their entirety from a state’s insurance code, they could become subject to the jurisdiction of the Bureau of Consumer Financial Protection if it were to determine that these contracts have a material impact on consumers.

Federal Insurance Office Act of 2010
Title V of Dodd Frank, also known as the “Federal Insurance Office Act of 2010” (“FIOA”), created a new Federal Insurance Office (the “FIO”) within the Treasury Department, the first, true federal agency related to the insurance industry. The FIO’s authority extends to all lines of insurance, other than crop, health and long-term care insurance, and it can collect data from insurers and their affiliates.

Similar to the question of whether the CFPA has jurisdiction over vehicle service contract market participants, the FIO’s regulatory reach turns on whether vehicle service contracts are considered “the business of insurance.” While the FIO clearly has authority over insurance companies that issue contractual liability insurance policies that insure the obligations of obligors under vehicle service contracts, the FIO could wade into seeking data from obligors and administrators as well.

Furthermore, the FIO is required to conduct a study and issue a report to Congress within eighteen months on ways in which insurance regulation can be modernized and improved, which could include recommendations for changes in how the vehicle service contracts industry is regulated.

NonAdmitted and Reinsurance Reform Act of 2010
Title IX of Dodd Frank, also called the “Nonadmitted and Reinsurance Reform Act of 2010” (the “NARRA”), prohibits a state from denying credit for reinsurance for the ceding insurer’s ceded risk, if the domiciliary state of the ceding insurer recognizes such credit and is either (a) an NAIC-accredited state; or (b) has financial solvency requirements substantially similar to NAIC accreditation requirements.

According to the legislative summary, the NARRA also “preempts the extraterritorial application of a non-domiciliary state’s laws, regulations, or other actions (except those related to taxes and assessments on insurance companies or insurance income) to the extent that they:

1. restrict or eliminate the rights of the ceding insurer or the assuming insurer to resolve disputes pursuant to contractual arbitration that is not inconsistent with federal law;
2. require that a certain state’s law shall govern the reinsurance contract, its requirements, or any disputes arising from it; or
3. attempt to enforce a reinsurance contract on terms different than those set forth in it, if those terms are not inconsistent with this subtitle.”

Thus, essentially, the NARRA eliminates any barriers that previously existed for insurance carriers issuing contractual liability insurance polices that indemnify or reimburse vehicle service contract providers (“Service Contract Liability Policies”) from getting credit for reinsuring the risk on such policies in numerous states, by subjecting such carriers only to the laws of their home state.

The NARRA also establishes new rules with respect to the assessment of premium tax payments for nonadmitted insurance. Specifically, under the NARRA “no State other than the home State of an insured may require any premium tax payment for nonadmitted insurance.”

However, the new law also allows States to enter into a “compact or otherwise establish procedures to allocate among the States the premium taxes paid to an insured’s home State;” and also requires that in order for States to impose eligibility requirements on nonadmitted insurers, that the State adopt “nationwide uniform requirements, forms, and procedures, such as an interstate compact.”

Further changes include, but are not limited to, (i) a limitation that only the statutory and regulatory requirements of the insured’s home State are applicable to nonadmitted insurance issued in such state and (ii) that only an insured’s home State “may require a surplus lines broker to be licensed in order to sell, solicit, or negotiate nonadmitted insurance with respect to such insured.”

Despite the foregoing, the nonadmitted insurance aspect of the NARRA may not be of particular importance to the vehicle service contract industry as a whole, since those insurance carriers which provide Service Contract Liability Policies usually do so as a licensed/admitted insurer, rather than on a surplus lines insurance basis.

However, like the FOIA, the NARRA represents for the first time a significant intrusion by the federal government into what has been historically limited to state regulation of the insurance industry and the insurance industry’s increasingly diminished tolerance for non-uniformity of state insurance laws.

Newly Enacted State Legislation

California
On September 29, 2010, California Governor Arnold Schwarzenegger signed into law California Assembly Bill 2111 (“A.B. 2111”), which amended various California statutes regulating service contracts.

One of the major changes that A.B. 2111 does to existing law is that it removes the exclusion for service contract sellers or insurers from the definition of “service contract administrator” making the California Service Contractors law applicable (including the registration requirements of Sections 9855.1 9855.3) to any insurer that “who performs or arranges the collection, maintenance, or disbursement of moneys to compensate any party for claims or repairs pursuant to a service contract, and who also performs or arranges any of the following activities on behalf of service contract sellers:

1. providing service contract sellers with service contract forms;
2. participating in the adjustment of claims arising from service contracts; or
3. arranging on behalf of service contract sellers the insurance required by Section 9855.2.”

The portion of A.B. 2111 specifically applicable to vehicle service contracts, eliminates the requirement that a vehicle service contract obligor provide in the written contract, itself, the methodology for calculating the pro-rata refund amount due when the purchaser prematurely cancels the vehicle service contract.

Instead, the new law allows the service contract obligor to determine the objective measure to be used to calculate the pro-rata refund at the time the contract is cancelled. A.B. 2111 also adds an exemption from the requirements governing a vehicle service contract for a warranty provided by a vehicle “glass sealant manufacturer.”

Florida
Florida Governor Charlie Crist signed into law Florida Senate Bill 2176 (“S.B. 2176”) on June 1, 2010, which substantially revises laws governing motor vehicle service agreement companies. Specifically, S.B. 2176 exempts commercial motor vehicle service contracts from regulation by amending the definition of “motor vehicle service agreement” to exclude “service agreements that are solely to persons other than consumers and that cover motor vehicles used for commercial purposes.”

S.B. 2176 also provides for misdemeanor penalties for service agreement companies that fail to be licensed as required under existing law; and increases the list of prohibited practices under current law (for example, making a false, deceptive or misleading advertisement “with respect to the service agreement company’s affiliation with a motor vehicle manufacturer” or “its possession of information regarding a motor vehicle owner’s current motor vehicle manufacturer’s original equipment warranty”).

S.B. 2176 eliminates the requirement that all service agreement forms and related documents must first be submitted and approved by the Florida Office of Insurance Regulation. Instead, a service agreement company can now use forms that do not have to be pre-approved, as long as such forms contain certain statutorily-required information and/or disclosures.

The new law also makes it clear that the Florida Office of Insurance Regulation no longer regulates rates charged by service agreement companies and requires that each service agreement sold in the state on or after July 1, 2011 “be accompanied by a written disclosure to the consumer that the rate charged for the service agreement is not subject to regulation by the office” which disclosure may be part of the service agreement, itself, or in a separate written statement.

Louisiana
Louisiana House Bill 519 (“H.B. 519”) went into effect on August 15, 2010 and added new Sections 969.24.1 and 696.24.2 to the Louisiana Motor Vehicle Sales Finance Act, aimed at eliminating anti-competitive behavior among motor vehicle sales finance companies. H.B. 519 could impact the way some vehicle service contract providers do business.

Specifically, Section 969.24.1 makes it unlawful for any person subject to the requirements of the act to take any actions “that the intended or actual effect of which is to coerce or attempt to coerce any seller to sell or offer to sell any extended service contract, extended maintenance plan . . .

offered, sold, backed, or sponsored by a particular entity, including but not limited to any manufacturer or distributor of motor vehicles or affiliates thereof . . .

by setting limits for the amount financed in regard to the financing of premium or other charges for any insurance coverage, product, or service financed on the retail installment contract, when the discrimination in the amount financed limits is based, in whole or in part, upon whether or not the product, insurance, or service is provided by [such] person or affiliates thereof . . . .”

Section 969.24.2 makes it unlawful for any person “to require a seller to sell any insurance coverage, product, or service, which is provided, administered, or sold by a person or any affiliates thereof, subject to the provisions of [the Motor Vehicle Sales Finance Act], in order to secure preferential financing or preferential limits on the amounts financed rates for the dealership or its customers.”

Washington
Effective on June 10, 2010, Washington House Bill 3032 added to the definition of “service contract” “a contract or agreement sold for separately stated consideration for a specific duration to perform the repair or replacement of tires and/or wheels damaged as a result of coming into contact with road hazards;” but excluded service contracts provided by tire, wheel or motor vehicle manufacturers.

Recent Court Decisions of Interest

In Sawyers v. Herrin-Gear Chevrolet Company, 26 So. 3d 1026 (Miss. 2010), plaintiff Andria Sawyers sued Herrin-Gear Chevrolet Company, Inc., alleging fraud, breach of contract and bad faith, emanating from the plaintiff’s purchase of a “Gap Asset Protection Deficiency Waiver Addendum” in connection with her purchase of a 2002 Ford Explorer.

In response to the lawsuit, defendant Herrin-Gear Chevrolet Company, Inc. filed a motion to compel arbitration based on an arbitration provision contained in the agreement. In granting the defendant’s motion, the court disregarded the plaintiff’s claim that the arbitration provision was invalid because the GAP waiver was an insurance policy subject to regulation and the defendant was not registered with the Mississippi Department of Insurance; and held that GAP waiver products were not insurance.

In Midwest Agency Servs., Inc. v. JP Morgan Chase Bank, 2010 U.S. Dist. LEXIS 22457 (E.D. Ky. March 11, 2010), the plaintiff sued JP Morgan Chase and its affiliated entities, Chase Auto Finance Corporation (“CAF”) and Chase Insurance Agency, Inc. (“CIA”), alleging anti-competitive practices stemming from CAF’s policy requiring automobile dealers that use CAF financing only to use “approved” GAP insurance products, which list did not include plaintiff but did include CIA, among other GAP insurance providers.

In dismissing the plaintiff’s complaint for “failure to state a claim,” the Federal District Court for the Eastern District of Kentucky held that the alleged unlawful “tying arrangement” could not be found to be a violation of the Sherman Antitrust Act since the plaintiff failed to demonstrate an antitrust injury, namely that the injury that occurred as a result of CAF’s actions were the type of injury that antitrust laws were intended to prevent.”

Specifically, the court stated that “Midwest’s allegation of an injury to its ability to sell GAP insurance products is not an antitrust injury;” and that “the law is settled that injury only to a competitor and not to the market does not create an antitrust injury.”

In Saccucci Auto Group, Inc. v. American Honda Motor Company, 2010 U.S. App. LEXIS 16127 (1st Cir. Aug. 4, 2010), the plaintiff-automobile dealer sued American Honda Motor Company and American Honda Finance Corporation (“Honda”) as a result of Honda’s prohibition on allowing its dealers to market and sell Honda Vehicle Service Contracts over the Internet, which policy instituted at the urging of a Honda’s Dealer Advisory Board, a body composed of independent Honda dealers who are elected to represent dealer interests.

In dismissing the plaintiff’s claims that Honda violated Rhode Island’s Dealer Act, which regulates the business relationship between automobile manufacturers and their dealers, the Court found that Honda neither engaged in “coercive conduct” or engaged in “arbitrary action” to the dealer’s detriment in violation of the Dealer Act, when it instituted a policy to suspend or permanently “deactivate” a dealer’s contractual right to sell Honda Vehicle Service Contracts for violating Honda’s no Internet sales policy.

WASHINGTON – President Obama has signed legislation that will raise limits to $5 million on federally guaranteed loans available to thousands of small auto dealers as the administration attempts to loosen credit in a sputtering economy, reported Automotive News.

The previous floorplan financing limit in the U.S. Small Business Administration pilot program was $2 million.

The 17-month-old program hasn’t gotten off the ground because banks, credit unions and other lenders have been reluctant to participate.

The Obama-backed bill, which contained provisions aimed at creating jobs as well as easing credit, passed the House and Senate over almost completely unified Republican opposition as the Nov. 2 congressional elections approach.

“We still need banks to lend,” said Bailey Wood, spokesman for the National Automobile Dealers Association. “The fact is, many credit worthy dealers are still having a tough time getting the credit they need to purchase vehicle inventory.”

The floorplan financing provision is part of a section that will raise loan limits for all qualified small businesses.

“It’s a great victory for America’s entrepreneurs,” the president said.

Under the new law, the portion of each loan that is backed by the federal government will remain 75 percent.

The law waives lender fees to the government of as much as $54,000 on a $2 million loan, SBA spokesman Michael Stamler said. These fees can be passed on to dealers.

More than half the 18,000 dealerships in the United States will qualify as small businesses for the floorplan financing assistance, Wood said.

To qualify, dealerships must have average net income of less than $3 million after taxes and tangible net worth of $8.5 million or less, he said. Only 61 SBA-backed floorplan loans totaling $61 million have been approved for dealerships, Stamler said.

Lenders have cited government red tape and fees, their own staffing constraints and lack of familiarity with floorplan financing.

The SBA program, which began in May 2009, will expire in September 2013 under the new law.

WASHINGTON – The U.S. Congress gave final approval to legislation aimed at boosting lending to small businesses in what is likely to be the Democrats’ final jobs bill before the Nov. 2 elections, Bloomberg reported.

The House passed 237-187 a measure offering tax cuts, loans and revived stimulus provisions to ease the flow of credit and show voters that Democrats are trying to boost the economy. The bill, approved by the Senate last week, goes to President Barack Obama for his signature.

The dealer portion of the legislation seeks to loosen credit by increasing the maximum size of a federally guaranteed loan that can be extended by the U.S. Small Business Administration.

It would enable small auto dealers to receive federally guaranteed loans of as much as $5 million — up from $2 million. It would affect the SBA’s year-old floorplan financing program for dealers, which has struggled to attract lender participation.

“The small-business jobs bill passed today will help provide loans and cut taxes for millions of small-business owners without adding a dime to our nation’s deficit,” Obama said in a statement. “I look forward to signing the bill.”

Economist Alan Blinder, a former Federal Reserve vice chairman, said many small businesses have had “extreme” difficulty getting loans, though he said poor sales remain their biggest problem.

“They always have a hard time getting credit, and given the state of the markets they’re having an even harder time now,” Blinder said in an interview. “This ought to be helpful on that score, but if the economy grows at one and a half percent, we’re spitting in the wind because there’s no demand.”

“The thing that drives small businesses over and above everything else is the ability to sell their product,” he said.

Republicans objected to provisions creating a $30 billion program in which the Treasury Department would buy preferred shares in community banks, with participants paying the government dividends on a scale depending on how much they increase lending. They said the plan amounted to little more than a smaller version of the Troubled Asset Relief Program.

“This is TARP, pure and simple,” said Representative Jeb Hensarling, a Texas Republican. “It is the capital purchase program with a different name.”

Thirteen Democrats voted against the measure. Walter Jones of North Carolina was the only Republican to support it.

For all the controversy over the lending initiative, it’s far from certain banks will participate in the program, said Mark Zandi, chief economist for Moody’s Analytics. Banks will probably be reluctant to take the government’s money, he said, after seeing TARP recipients hit with retroactive executive-compensation limits amid a public outcry over tax dollars going to institutions paying million-dollar salaries.

“I’m skeptical that banks will actually take the government up on their offer,” said Zandi. “The memory of TARP will be in the minds of those lending institutions, and they’ll be reluctant to use the capital.”