With auto loan debt at a historic high, report calls for Trump Administration, states to tackle predatory practices
DURHAM, N.C. — With auto loan delinquencies and defaults as well as vehicle repossessions at the highest levels since the Great Recession, the Center for Responsible Lending (CRL) today released a new report, “‘We Woke Up to Them Taking Our Car’: Borrowers’ Experiences with Subprime Auto Lending.” Drawing on a series of focus groups and in-depth interviews , the paper provides firsthand accounts and analysis of the challenges of purchasing and financing a car in today’s economy, particularly for borrowers with lower incomes or subprime credit scores. Reporters are invited to interview a focus group participant about their experiences.
“This research shows the way that auto dealers and lenders are often incentivized to lead consumers into bad loans,” said Alex Rogers, report co-author and researcher at CRL. “At every point in the process, dealers and lenders introduce mechanisms for extracting money from consumers.”
Key experiences from focus groups of borrowers include:
- Dealers used high-pressure tactics to increase costs and steer borrowers into costly loans. Most borrowers took out costly loans they didn’t fully understand.
- Borrowers were offered limited loan options — with most told they only qualified for one loan — and felt compelled to accept unaffordable loans given their financial situation and transportation needs. They also described dealers that withheld critical information or misrepresented the value of add-on products and warranties.
- Borrowers struggled to repay unaffordable loans. Borrowers described hardship even from the outset of the loan, coping mechanisms like getting a side job, and surprise fees like deferred interest charges.
- Borrowers described aggressive repossessions, including “kill switches” that stop a car from operating even while a person is driving it, and the negative impact on their lives.
Kaittay Cius of Florida, a focus group participant, shared about taking out a loan, “I feel like I was definitely swindled…. They told me it would be $200 a month for four years, but that wasn’t true.”
Lucia Constantine, report co-author and senior researcher at CRL said, “This report shows how the advantages auto dealers and lenders have over consumers result in exploitation. Our government must establish guardrails to protect consumers — like it did in the mortgage market.”
The report’s recommendations for policymakers include:
- End sales and pricing tactics that inflate costs
- Finalize and implement the Federal Trade Commission’s (FTC’s) Combating Auto Retail Scams (CARS) rule and pass similar state-level protections, including a prohibition on bait-and-switch advertising and a ban on charging for valueless add-ons.
- Prohibit or strictly limit dealer interest rate markups.
- Impose reasonable caps on interest rates and fees.
- Establish basic affordability standards for auto loans
- Create an ability-to-repay requirement for auto lending.
- Stop servicing practices that deepen distress
- Require disclosure of the costs of deferments, including any additional interest that accrues, any extension of the loan term, and the impact on the payoff balance.
- Curb aggressive collection and repossession practices
- At minimum: prohibit the use of starter interrupter devices (“kill switches”) while a vehicle is in motion.
- Require meaningful notice before auto repossession, so borrowers have a chance to cure the debt and are not waking up to find their vehicles gone after a single missed payment.
- Enhance market oversight
- Use the Consumer Financial Protection Bureau’s supervisory and enforcement authority over auto lenders, including for discriminatory pricing.
- Prohibit auto contracts from forcing people into arbitration and denying them their right to sue companies for misconduct.
To watch videos of borrowers, a financial counselor, and a report co-author as well as to read the report, go to: “‘We Woke Up to Them Taking Our Car’: Borrowers’ Experiences with Subprime Auto Lending.”
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Press Contact: Matthew Kravitz matthew.kravitz@responsiblelending.org