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.
- 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.
- 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.
- 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.
- Susan Tompor: Some Car Buyers Don't Know Their Loan Options
Detroit Free Press 16 Feb 2012
Across the country, car buyers are often paying high interest rates on car loans. But experts say that historically low interest rates are allowing more people to obtain lower-interest car loans or to refinance their current loan. "People often think they are stuck with whatever their car loan is. They don't even consider refinancing," said Hank Hubbard, President and CEO of Communicating Arts Credit Union in Detroit. The credit union has come up with its own "bailout" program, helping consumers to refinance their car loans for a lower interest rate and, thus, lower car payments. "Auto loan rates are at record lows, so this is an environment where it can make sense," said Bankrate.com financial analyst Greg McBride. A recent survey by Bankrate.com found that the average five-year, new-car loan rate was 5.24 percent and the average three-year used car loan rate was 6.22 percent. Additionally, some lenders offer even lower rates, so consumers should shop around.
- Examining Buy Here, Pay Here Car Sales
Covington News 15 Feb 2012
To meet the growing needs of lower-income consumers who have little or no credit, "buy here pay here" car dealerships -- in which the car dealership finances its own loans and then repossesses and resells the vehicle if the buyer falls behind on the payments -- have been springing up across the country. Proponents say that the businesses provide an important service to people with few traditional options, that lenders are upfront about the costs and risks, and that borrowers are adults responsible for their own decisions. Critics counter that "buy here pay here" dealerships thrive on the business of people with no options and charge outlandish interest rates on vehicles that in many cases have been repossessed and resold multiple times. The main difference between "buy here pay here operations" and traditional auto lenders is that the former is mostly a financing business, consumer and industry advocates say, whereas traditional car dealerships either outsource the loans to a bank or issue the loans in-house and then sell them to a financial institution. Consumer advocates say that many "buy here pay here" dealerships will purchase cars very cheaply, even as salvage automobiles, and will drastically mark up the resale value. The down payment and payment schedule is often based on the salesperson's assessment of the customer, consumer watchdogs say, and many of these businesses market themselves as dealerships that do not check a buyer's credit history.
- Joliet Neighbors Fight Budget Car Dealership Plan
Joliet Herald News 26 Jan 2012
The same kind of public outcry that has kept pawn shops and gold stores out of Joliet, Ill., now is directed at CarHop, a company that sells autos to individuals with poor credit. "We don't really approve of the way they do business," explains Carol Ann Heinemann, president of the St. Pat's Neighborhood Association, who says the company practices "predatory" lending. CarHop counters that it levies interest rates no higher than 18 percent. Car values may be higher than other dealers, CarHop regional development manager David Grimm concedes; but he says the company also relies on a warranty program and has other fees associated with poor credit that go into the car price. In the long term, Grimm insists that CarHop helps its customers by getting them into vehicles and helping them boost their credit rating. "They seem more interested in making money off of those people," according to Bob Nachtrieb, an officer with the Cathedral Area Preservation Association. CAPA has come alongside St. Pat's in opposing CarHop, which would go into a location between the neighborhoods.
- Bill Would Regulate Buy Here Pay Here Used-Car Lots as Lenders
Los Angeles Times 10 Jan 2012
"Buy Here Pay Here" used-car lots in California would be regulated as lenders under proposed legislation designed to curtail what some say are abusive and predatory practices. Unlike conventional dealerships, these businesses finance vehicle purchases in-house, offering customers -- usually borrowers with poor credit -- the equivalent of installment plans. Dealers often charge triple the book value for older used cards, impose interest rates of 30 percent or higher, and sometimes repossess and re-sell an automobile multiple times for a profit. A bill introduced by state Sen. Ted Lieu (D-Torrance), however, would place the dealers under the governance of the Department of Corporations, which also regulates banks and payday lenders. "What Buy Here Pay Here dealers are doing is in fact a form of lending," insists Lieu. "They've been able to fly under the radar and not comply with lending laws." Under his proposal, they would have to file annual reports to the Department of Corporations; they also would be blocked from charging interest rates of more than 17 percent plus the federal funds rate on installment loan contracts.