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.
- 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.
- Avoid Being 'Yo-Yoed' Back to the Dealership After Purchasing a Car
Wilson County News 03 Jan 2012
U.S. consumer advocates and car buyers are scrutinizing a practice at some car dealerships known as "yo-yoing." The unsavory practice occurs when a consumer purchases a new car and later is notified that the auto dealer was unable to arrange financing. When this happens, the dealer either offers the buyer a different car, raises the interest rate, or repossesses the vehicle. Typically, the dealer will not refund the down payment the buyer made on the new car, claiming it goes toward the mileage put on the car once the customer drove it off the lot. Additionally, sometimes the dealer even refuses to return the vehicle the consumer traded in at the time of purchase. According to the Center for Responsible Lending, one in eight car buyers who make less than $40,000 have experienced such deals. For individuals who earn less than $25,000, the occurrence rate rises to one in four. Consumer advocates recommend that shoppers research auto dealers, consider financing through their bank or credit union, stay at the dealership until financing is approved, and thoroughly read the paperwork they are signing.
- In Loan Case, Jury Awards Independence Woman More Than $1 Million
Kansas City Star 31 Dec 2011
A Missouri woman was awarded a court judgment of $1,198,512 after jurors determined that a finance firm had deceived her into making car payments for which she had no legal obligation. Carrie Peel bought a new vehicle for $12,450 in August 2008, putting $3,500 down and financing the remainder. When her 30-day temporary license tag was about to expire, she went to the Department of Revenue to license the car and discovered that the title was not included with the paperwork. She returned to the car dealership, only to find it shut down. When she contacted Credit Acceptance Corp., which had purchased her car loan from the now-defunct dealership, she was told that if she did not continue to pay, her credit would suffer. Peel continued to pay, even though the Missouri Merchandising Practices Act protects customers in such situations. Peel was unable to sell the car because she did not have the title and was stopped by law enforcement officers for driving an unlicensed vehicle. Jurors voted to award Peel $11,007.81 in damages and more than $1.18 million in punitive awards.
- Default Rate for Auto Loans Continues to Fall
Automotive News 28 Dec 2011
Auto loans performed more strongly than other major categories of consumer debt in November, part of a consistent pattern in consumer behavior, according to figures released by Standard & Poor's and Experian. The default rate for auto loans dropped to 1.17 percent last month, down from 1.22 percent in October and 1.77 percent in November 2010, based on the S&P/Experian Consumer Credit Default Index. Meanwhile, the default rate for bank credit cards was 4.91 percent in November, up from 4.85 percent in October but down from 6.85 percent a year earlier. The average default rate for first mortgages increased in November from the month before to 2.17 percent. It was the third month in a row that first mortgage default rates increased, though the November 2011 figure was lower than the year-earlier pace of 3.06 percent. "In the last recession, there was definitely a shift in consumer behavior," said S&P's David Blitzer. "Traditionally -- in previous recessions -- people would do anything to hang on to their house; to make their mortgage payment. They might have six credit cards, all in arrears. This past recession people didn't always take that attitude." Web Link
- Auto Lending Rebound to Continue
Detroit Free Press 14 Dec 2011
According to the most recent data from TransUnion, the lending environment for vehicle loans is improving for consumers, and fewer borrowers are behind on their payments. TransUnion estimates that for the last three months of the year, just 0.51 percent of borrowers with an auto loan will be 60 days or more past due. According to Peter Turek, automotive vice president in TransUnion's financial services business unit, the volume of financing for new and used cars is increasing, which will likely continue in 2012. Turek predicts that banks and auto loan financing firms likely will offer better rates and promotions next year as they vie for consumers' business. Additionally, he says that those with imperfect credit will be more likely to be able to obtain a new or used car loan because of the increase in competition.
- Avoid Being "Yo-Yoed" Back to the Dealership After Purchasing a Car
Midland Reporter-Telegram 14 Dec 2011
After letting customers drive away in a car believing that they had obtained financing, some automotive dealerships have attempted to secure a loan after the sale. When the customer's credit was turned away by several different lenders, the dealership demanded that the car be returned or renegotiated the rates without the customer's consent. If the borrowers came back with the car, the dealership kept their down payment to cover mileage put on the vehicle since it left the lot. When the customers requested back their trade-ins, the dealership said they had already been sold. The practice, referred to as "yo-yoing," is being analyzed by car buyers and consumer advocacy groups nationwide. According to the Center for Responsible Lending, one in eight car buyers earning less than $40,000 have experienced a yo-yo deal. For those making less than $25,000, the incident rate rises to 25 percent. To avoid being yo-yoed, the Better Business Bureau recommends that consumers research auto dealers at bbb.org to ensure they are a reliable and trustworthy; do not leave the dealership until financing is approved; and read through all the paperwork to be sure all the terms are understood.
- Investors Place Big Bets on Buy Here Pay Here Used-Car Dealers
Los Angeles Times 01 Nov 2011
Altamont Capital Partners of Palo Alto, Calif., and other investors are realizing a windfall in a little-noticed corner of the used-car industry known as Buy Here Pay Here. Many of these businesses require customers to return to the lot to make loan payments -- which is how they earned their name. If buyers default, as roughly 25 percent do, the dealer repossesses the vehicles and in many cases resells them. The dealerships earn an average profit of 38 percent on each sale, according to the National Alliance of Buy Here Pay Here Dealers, which is more than double the profit margin of conventional retail car chains. Investor funds are flowing into the industry from multiple sources, helping Buy Here Pay Here dealers expand their market share and boost their profile. In addition to private equity firms such as Altamont, several payday lending chains are dabbling in Buy Here Pay Here and have snapped up dealerships. Stock investors are purchasing shares in Buy Here Pay Here chains and other publicly traded companies in the business. Additionally, loans generated at the dealerships are being securitized, just like subprime mortgages were a few years ago, and sold to investors. The returns can prove lucrative, but analysts fret that the securitization boom could encourage dealers to lend recklessly. "We think that investing in such companies is a ticking time bomb," explains Pax World Management CEO Joe Keefe. "It has ethical as well as systemic risk implications."
- Credit Probes Go Beyond Scores
Atlanta Journal-Constitution 14 Sep 2011
When consumers apply for new loans, request a store credit card, or sign up for a cellphone, the companies they do business with may delve more deeply into their credit history than they used to. Following the Great Recession, more lenders are sifting through consumers' personal financial information in ways they have never done before, according to industry experts and consumer groups. Additionally, they are more likely to rely on information other than just a traditional credit score. Data companies are now collecting information relevant to consumers' job history, income, and net worth -- which lenders can use to flag anyone it considers a credit risk. Consumer groups acknowledge that lenders should take greater care in their lending practices but worry that incorrect conclusions could actually impede some creditworthy borrowers when they attempt to get loans.