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.
- 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.
- 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.
- 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.
- 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.
- Car-Insurance Rates Unfair to Poor, Consumer Group Says
WPTV 5 (Fla.) 16 Mar 2012
The Consumer Federation of America (CFA) issued a report suggesting that low income drivers are unfairly charged higher auto insurance premiums due to discriminatory practices, and the group has called on state insurance regulators to take action. CFA says that low- and moderate-income families earning less than $37,000 per year pay higher premiums than higher-income households due to rating factors like occupation, education, credit rating, and where they live. American Insurance Association (AIA) Chief Claims Counsel Jim Whittle says that different insurers use a number of different variables to price insurance. "The most important thing from our perspective is that rates need to reflect risk," he said.
- U.S. Auto Lenders Give Easier Terms, Cheaper Money
Reuters 23 Feb 2012
U.S. lenders made more auto loans in the most recent quarter, but took more risks and charged less interest to get the business, according to a report released on Thursday by Experian Automotive. Outstanding car loans increased nearly 4 percent to $658 billion at the end of December from a year earlier as borrowers financed larger amounts per car and lenders accepted lower credit scores and gave people more time to pay. The expanded lending and easier credit came with evidence that the economic recovery is benefiting banks and borrowers alike. Delinquency rates declined, and the amount of loans at risk fell by 9 percent, according to Experian.
- Taken for a Ride: Is Dealership Financing Ever Worth It?
GoBankingRates.com 23 Feb 2012
Dealership financing can be a good or bad deal for a car buyer, depending on a handful of factors. Because dealers are trying to make a profit, they will attempt to charge additional dealer markups (ADMs) for features such as VIN etching, exterior rust-proofing, and sophisticated security systems -- all extras that a buyer can turn down. Other more straightforward costs, including destination and delivery fees and sales tax, that can jack up the price of a vehicle. Offers for "Zero down, 0 percent APR financing" lure many prospective buyers to dealerships, but the majority find that such offers are not what they appear to be. According to the Consumer Federation of America, just 15 percent of car buyers qualify for this highly sought incentive. Dealerships also encourage buyers to sign up for 72- or 84-month payment plans so that they put more toward interest in the beginning of the loan than they do at the finish. Consumers pay dearly for markups, according to the Center for Responsible Lending, which found in a 2011 study that individuals who purchased a car at a dealership paid nearly $26 billion in markups over the duration of their loan agreements -- an increase of approximately $714 per customer. If the buyer has a relationship with a trusted bank, consumer groups suggest turning there for objective loan and credit feedback, since banks have no stake in making a profit from a vehicle -- unlike the dealer. Credit unions are another go-between option between a car buyer and the dealership because they are more likely to help the individual find a competitive interest rate, unlike a dealership salesman. Ultimately, if a consumer can withstand the many hoops and avoid getting sold on unnecessary extras, dealership financing is the easiest and most direct purchasing option. Buyers with strong credit histories and good negotiation skills will benefit the most from purchasing through this plan.