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.
- Credit Spigot Opening Up for Subprime Auto Borrowers
U.S. News & World Report 16 Jul 2012
Credit remains tight for most Americans, but auto financing is the exception. In recent months, consumers have found it increasingly easy and cheap to borrow money for vehicle purchases. New auto bank loans reached a seven-year high between January and March 2012, Equifax reports. The trend even applies to subprime borrowers. "The feeling is there is more loosening in auto lending than there has been and will be in other sectors of the consumer credit world," notes Andrew Jennings, chief analytics officer at FICO. The increase in auto lending is partly due to higher demand for cars and trucks to replace older vehicles. Additionally, auto loans tend to be less risky for lenders, with traditionally lower delinquency rates. Cars and trucks also are easier to repossess than homes. "It's not like a house where you stop making the payments and they take two years to kick you out of the house," explains Bankrate.com senior financial analyst Greg McBride. "You miss two car payments and it's not going to be in the driveway in the morning." However, even as borrowers with subprime credit have more access to credit, it comes with higher interest rates.
- Rate of Late Auto Loan Payments Sinks to Lowest Level Since 1999 in 1st Quarter
Associated Press 22 May 2012
The pace of late payments for auto loans fell nationwide in the first three months of the year to the lowest level in more than a decade, even though lenders have granted financing for more high-risk borrowers. For the 2012 first quarter, the rate of U.S. auto loan payments 60 days or more past due declined to 0.36 percent, about 27 percent lower than the same period of last year, according to TransUnion. That also is down about 22 percent from the fourth quarter of 2011. The latest rate is the lowest since TransUnion began tracking auto loan data in 1999. Auto loan delinquencies have been trending downward on an annual basis for the last 10 quarters in a row -- in part because, after the last recession, many borrowers opted to pay their car notes ahead of their mortgage, credit cards, and other debts.
- The Color of Money: Pay for Car With Cash, You'll Reap the Payoff
Columbus Dispatch (OH) 20 May 2012
While it may seem like common sense, some consumers are unaware that they can buy a vehicle with cash as an alternative to getting caught up in predatory auto financing. Edmunds.com recently announced the launch of its "Debt-Free Car Project," which aims to teach consumers to purchase a reliable used car for less than $5,000 in cash. The site editors developed the project due to concerns over "buy here, pay here" used car outlets. Consumer advocates have long criticized dealers who prey on vulnerable individuals by offering car loans at high interest rates. According to Edmunds, buyers are often working to save about $3,000 to purchase a reliable car. "We were thinking, 'Why don't people buy a car outright,'" said Ronald Montoya, Edmunds.com Consumer Advice Editor. "If they are putting down deposits of $3,000, then that's more than enough to buy a car that is reliable." As part of the campaign, Edmunds staff purchased a 1996 Lexus for $3,800. The team plans to track and write about the vehicle's performance over the next year.
- Returning Veterans Can Lower Credit Card Interest Rates
KSTP Eyewitness News ABC 5 (Minnesota) 16 May 2012
Although not widely known, the 2003 Servicemembers Civil Relief Act (SCRA) offers valuable protections for current and past members of the U.S. military. Under it, deployed veterans can serve out their missions overseas without worrying about finances. For example, the law prevents banks from foreclosing on veterans who are deployed. This applies not only during the active-duty period but also for nine months after. During this time, creditors cannot foreclose or repossess items from veterans without a court order allowing them to do so. The SCRA also caps loan interest rates at 6 percent while enlisted persons are on active duty, a limit that also applies to credit cards, auto loans, and business financing. Veterans who send a letter to lenders to request the 6 percent cap, within 180 days of coming home, are entitled to a credit or refund if their loan is fully paid.
- 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.