Latest Auto Lending News
Here are the latest news in the world of consumer auto lending. Stay informed on the latest practices affecting the cost of your next car loan and vehicle.
- Car Buyers Cautioned to Avoid Financing Scheme
Nooga.com 08 May 2012
Consumer protection agencies are cautioning auto buyers about a certain type of costly financing that can involve higher interest rates or bigger down payments. With "yo-yo financing," a consumer takes possession of a vehicle before the financing process is completed. This is an offshoot of the "spot delivery" process, in which the buyer can drive away with a car before the financing process is officially completed. "Spot deliveries aren't typically a problem," Carroll Lachnit, consumer advice editor for Edmunds.com, said. "But they are sort of a 'gateway' that unscrupulous dealers can use to pull a buyer into the yo-yo financing scheme." Problems occur when a buyer with poor credit does not actually qualify for a dealer's loan. If a car is purchased in a conditional sale, the buyer can drive off the lot; but sale terms are not finalized in the contract until the loan is approved by the dealership. If the dealership does not approve the loan, it can negotiate new, less favorable terms with the buyer. "Unscrupulous dealers use yo-yo financing to lull buyers into thinking that they have loans they can afford, but then pull a bait and switch for loans with higher interest rates or a bigger down payment or both," Lachnit said. A survey by the Center for Responsible Lending, conducted with legal aid groups that help consumers with auto buying problems, found that about 27 percent of respondents said their clients had experienced a yo-yo scam. Buyers can avoid the scam by receiving preapproved financing and by making sure every part of the deal is in writing. They should avoid signing anything "conditional" in the contract. Individuals with bad credit may want to try to improve it before financing a car purchase, or shop around for a car loan and have the financing settled before purchasing. Saving money and paying for a used car in cash can help avoid financing schemes completely.
- 3 California Bills to Rein In Buy Here Pay Here Dealers Advance
Los Angeles Times 25 Apr 2012
Two consumer protection measures targeting the Buy Here Pay Here industry easily passed in a California Assembly committee on April 24. Introduced by Assemblyman Bob Wieckowski (D-Fremont) and Assemblyman Mike Feuer (D-Los Angeles), the bills would give buyers information about a car's value and a 30-day or 1,000-mile warranty against breakdowns. Another proposal that passed the state's Senate Judiciary Committee, introduced by Sen. Ted Lieu (D-Torrance), would put Buy Here Pay Here dealers in the category of state-regulated lenders, requiring them to register with the California Department of Corporations. The bill also would cap interest rates at 17 percent plus the federal funds rate. The measures were introduced after several stories surfaced last year detailing the industry's rapid growth and profitability. Consumer advocates claim that Buy Here Pay Here dealers charge buyers too much for high-mileage clunkers, imposing high interest payments and repossessing the car when a payment is missed. The dealers often target low-income and poor-credit borrowers, as well as military personnel. Feuer's bill also would ban dealers from requiring customers to pay their loans in person at the car lots, which is often just a ploy to repossess the vehicles from late payers.
- Streetsboro Car Dealer Sued for Violations of Ohio Consumer Laws
RecordPub.com 21 Apr 2012
Ohio Attorney General Mike DeWine has brought lawsuits against two car dealerships, including Keep It Moving Auto of Cleveland, alleging that the businesses and their owners violated multiple state consumer laws. The dealerships are "buy-here-pay-here" operations, which offer financing for used vehicles directly through the dealerships, often catering to lower-income consumers and charging high interest rates. Several consumers filed complaints against the businesses, after which the AG’s office found several violations. These include failing to notify consumers of payment due dates; failing to inform consumers of the total cost of credit; and including an acceleration clause for consumers who default, meaning the total balance would be due immediately, also without notice. Keep It Moving Auto owner Ronnie Simmons Jr. and employee Chester Leonard are charged with violations of Ohio’s Retail Installment Sales Act, Consumer Sales Practices Act, Odometer Rollback and Disclosure Act, and Certificate of Motor Vehicle Title Law. DeWine is seeking injunctive relief, civil penalties, and consumer restitution.
- Buy Here Pay Here Chain Is Probed
Los Angeles Times 21 Apr 2012
The Consumer Financial Protection Bureau has launched an investigation into Phoenix-based DriveTime Automotive Group, one of the largest Buy Here Pay Here used-vehicle chains. DriveTime, with 90 dealerships nationwide, is the first Buy Here Pay Here company to be investigated by the federal agency. The Buy Here Pay Here industry consists of used-car dealers that lend to people with damaged credit by offering direct, in-house financing rather than using outside lenders like banks or credit unions. Borrowers have griped, however, about high prices, exorbitant interest rates, onerous payments, and speedy repossessions that often ruin their credit and drag them into bankruptcy. In January, CFPB director Richard Cordray said the industry is a priority for the fledgling regulator. The investigation marks the most prominent step taken to rein in an industry that has flourished below the radar of regulatory scrutiny for years.
- Consumer Advocates Seek Halt to 'Yo-Yo' Car Financing
New York Times 18 Apr 2012
Consumer advocacy groups are calling on the Federal Trade Commission (FTC) to put a stop to "yo-yo" car financing schemes. In a typical scenario, a consumer drives off the lot with a car, believing the deal is complete, but is called back several days later and required to sign a less favorable deal or forfeit the vehicle. In February, the Center for Responsible Lending (CRL) submitted testimony to the FTC, calling the schemes harmful to low-income customers and those with bad credit. The CRL told the federal regulators that the "spot sales" usually occur when a dealership is unable to sell the loan to a bank or finance company. According to Christopher Kukla, senior counsel for government affairs at CRL, buyers in such situation often sign new contracts with higher interest rates and/or down payments; and those who refuse sometimes are unable to get their trade-in vehicles back. The CRL and other consumer advocates are asking the FTC to halt these sales as "unfair and deceptive" practices. The National Automobile Dealers Association claims that such deals are not prevalent.
- Yo-Yo Scam Exploits Credit-Challenged Car Buyers
MSNBC 12 Apr 2012
Conditional auto loans are popping up all over the country, whereby buyers drive off the lot the day of the sale but are forced to return the vehicle if the financing falls through days or weeks later. The dealership typically tells the consumer to return the car or pay more money. This "yo-yo" financing practice leaves consumers who cannot pay the extra costs without reliable transportation and, often, without their trade-in. According to new research from the Center for Responsible Lending, victims typically have low or no credit. The consumer advocacy group said more than half of "yo-yo" car buyer had a tough time recovering their down payments or trade-in vehicles, causing the majority to sign a new contract with a higher interest rate. In its report, Deal or No Deal: How Yo-Yo Scams Rig the Game Against Car Buyers," CRL polled five organizations that assist individuals with auto finance issues. It found that 27 percent of their clients in the last year had fallen prey to such a scam. Car dealers counter than most car loans are conditional. Consumers should consider obtaining a loan from a bank or credit union to avoid such problems. Several consumer groups are pushing for the Federal Trade Commission to establish new rules that would require contracts to be binding on both sides. "The dealer should not have the ability to back out of a deal -- days, weeks or even months later -- because they've decided that the profit is not to their liking," said CRL's Chris Kukla.
- Programs Offer Low-Income Families Low-Cost Auto Loans
MyFox Detroit 09 Apr 2012
Two Michigan-based nonprofits are working to ensure low- to moderate-income families can access low-cost loans to purchase or fix reliable vehicles and financial education. Matrix Human Services and Spectrum Child & Family Services introduced a couple of Detroit Ways to Work programs that will offer character-based loans with realistic repayment terms to families in Macomb, Oakland, and Wayne counties. The $6,000 auto loans and the $1,500 repair loans are intended to help families in need of a reliable vehicle, and whose credit rating prevents them from getting a fair, traditional loan. In order to obtain one of the loans, applicants are required to be employed, have children, and meet low-income standards set for each community. Families approved for the flat 8 percent interest rate car loans will be required to participate in financial education classes.
- Consumer Loan Delinquency Rates Drop Across the Board
International Business Times 05 Apr 2012
Consumer loan delinquency rates fell in all 11 categories that the American Bankers Association (ABA) tracked in the fourth quarter of 2011. This indicates that Americans are reducing private debt and stabilizing their personal finances. "It's very rare that delinquencies improve in every single loan category. The last time that happened was in the fourth quarter of 2004," ABA Chief Economist James Chessen said. Despite the declines, however, loans in certain housing categories remain high compared to historic levels. The health of the jobs market also remains poor compared to pre-recession levels, though this market has seen improvements since mid-2009. The Federal Reserve's financial obligation ratio (FOR) is also below pre-recession levels. The FOR compares obligations in debt, automobile, rental, homeowners' insurance, and property tax payments to disposable personal income; it is now at the lowest level since 1984.
- FTC Sues Three California Firms Offering Car Loan Modifications
Los Angeles Times 05 Apr 2012
The U.S. Federal Trade Commission is suing three California companies that offer auto loan modifications: Hope for Car Owners in Folsom, Kore Services in San Diego, and Nafso VLM in Roseville. These companies allegedly charged hundreds of dollars in upfront fees for car loan modifications. According to the suit, these firms did not fulfill their agreements to get the modifications and refused to give customers advertised refunds. This is the FTC's first action against auto loan modification claims, according to court documents. The complaints have asked the U.S. District Court in Fresno to issue temporary restraining orders that would shut down the companies as these cases are pursued. Hope for Car Owners manager Patrick Freeman countered by asking the court to deny the restraining order, saying that his company took down its only active Web site, carloanmod.com, and planned to dissolve. In the filing, Freeman denied any wrongdoing. Hope and Kore counselors allegedly told consumers to stop paying auto lenders and instead pay fees to the loan modification companies. The FTC alleged that after collecting fees, the companies rarely tried to modify customers' loans and often did not even attempt to contact lenders. The suit claims that at least one client's vehicle was repossessed after she had paid $400 to Hope.
- TransUnion Sees Consumers Favoring Auto Payments Over Home, Credit Card
Wall Street Journal 29 Mar 2012
A TransUnion study found that mortgages --historically the debt most likely to be paid by borrowers -- are now the most vulnerable to missed payments as home prices have weakened and protecting equity through timely payments is no longer a priority. The firm looked at a sample of nearly 4 million consumers through last year, finding that only 9.5 percent of delinquent consumers had lapsed on their car payments while remaining current on their home loans and credit cards. By comparison, 17.3 percent lapsed only on their credit card, and 39.1 percent lapsed only on their mortgage. Credit card payments more recently have trumped home payments, said Ezra Becker, TransUnion vice president of financial services research and consulting, as more consumers have needed to supplement their incomes or pay for daily needs with credit. Auto loans, however, have emerged as the most protected payment, according to TransUnion executive Ezra Becker, because keeping a car in order to get to work or seek employment is a more immediate need in post-recession America.