Predatory lending is unfair, deceptive, or fraudulent lending practices, usually backed by collateral that can be repossessed or foreclosed on if the borrower defaults on their loan. Lenders are often accused of tricking the borrower into thinking that their interest rate is lower than it actually is and that they will be able to repay the loan. Although predatory lenders tend to target the less educated, the poor, racial minorities, and the elderly, anyone can be a victim of this practice. Predatorial lending may not always be illegal, but it can leave victims with bad credit and unmanageable debt. Continue reading
Tag Archives: Buy Here Pay Here
Auto Loan Dealer Fees Accused Of Violating Fair Lending Rules
Approximately eighty percent of all automobile buyers requiring financing, get their loans through the dealership where they are purchasing their vehicle. The dealerships extended hours and “approval while you wait” make it easy for consumer’s to get their financing and their new vehicle the same day. According to a recent report from the Federal Reserve Bank of New York, what you gain in convenience, you pay for in high interest rates and fees. This problem has prompted a number of government investigations into the growing business of auto lending. Continue reading
Auto Lender Practices Questioned
Last month, U.S. automobile lenders received subpoenas from the Consumer Financial Protection Bureau (CFPB) over the sale of extended warranties, add-ons and other financial products. Regulators are probing whether the terms and prices of these products are adequately disclosed to consumers and are questioning if some lenders may be using them as a way of boosting profits. Continue reading
Restrictions On Buy Here Pay Here Dealerships
Buy Here, Pay Here is a phrase for used car dealerships in which the company is both the seller and the loan holder . For years, they have operated under the radar, typically selling vehicles to consumers with bad credit at inflated interest rates, making repossessions common. Last fall, the Los Angeles Times ran a three part series on Buy Here, Pay Here dealerships which drew the attention of businesses and government officials.
In a step to protect consumers from these predatory vehicle loans, Gov. Jerry Brown signed into law two bills regulating the practices of Buy Here Pay Here lots. The first bill will require these dealerships to provide warranties on every car they sell in California. The second will require dealers to post fair market values for their vehicles and give customers greater flexibility in making payments. A third bill which would have limited interest rates to 17% plus the federal funds rate, and provide buyers with a fifteen (15) day grace period before repossessing cars for a missed payment, was vetoed by Brown. Brown wrote in his veto message that he was not convinced the evidence merits dealers to be regulated by the Department of Corporations under the California Finance Lender’s Law. He added that if consumers still need more protection once those bills are implemented, he and his administration would work with the Legislature to find an appropriate solution.
Protection From Buy Here Pay Here Autos
“Buy Here Pay Here” (BHPH) automobile sales are under attack by a new bill that hopes to regulate business practices of these car dealerships. A recent article in the Los Angeles Times stated that 20% of all used car purchases in the U.S. are financed with BHPH deals. Many of these dealerships are known for high purchase prices, interest rates nearly triple the national average, and aggressive repossession practices. These unregulated loans are known for taking advantage of people with poor credit histories who need a car but can’t get a loan.
Senate Bill 956 contains several important protections that will prevent these dealerships from taking advantage of California consumers. The bill hopes to:
- Impose regulations that requires “Buy Here Pay Here” auto dealerships to obtain a California Finance Lender license.
- Limit loans to a maximum 17 ¼ % interest rate.
- Give consumers an eleven day “grace period” after due payments before the vehicles can be repossessed.
- Require BHPH dealers to provide written notices to their customers informing them of their legal rights.
The Bill is expected to be reviewed within the next month.
CA Auto Bill Wants New Rules For Dealerships
California lawmakers are are hoping to protect working families by imposing tough new rules on “Buy Here Pay Here” automobile dealerships. Assemblyman Mike Feuer introduced the bill last week saying that it would limit unfair sales and collection practices used by these dealerships. Some of the changes include:
- Dealerships would be required to display the price of the vehicles on the car where customers can see it.
- Customers would not be forced to make payments in person at the dealership.
- Dealers would not be allowed to call personal references after the sale is complete.
- Dealerships would not be allowed to install GPS trackers or devices that can remotely shut down vehicles.
Lobbyist for the Independent Automobile Dealers Assn. of California, say that enforcement, rather than new regulations, would be a better way to handle problems with Buy Here Pay Here dealers. They say that the new bill would impose additional costs on all dealerships, putting legitimate dealers out of business. In the end, people with bad credit will find it even harder to get an affordable and reliable vehicle.
Alternatives To Buy Here Pay Here Auto Sales
Studies have shown that low-income people can increase their income, are more involved in the community, and have better access to healthcare when they have their own transportation. It is also estimated that one in four needy families do not have a car. The U.S. Transportation Department plans to spend over $100 billion on roads, bridges, public transit, and rail projects, but has little money allocated to help the poor purchase a car. Some feel that the government actually made it harder with programs like “Cash For Clunkers”. The program resulted in higher priced used automobiles by removing almost 700,000 running vehicles from roads. In some states, people receiving government aid are restricted to how much they can spend on a vehicle, leaving them with an unreliable car or no car at all.
Consumers that need a car, but have bad credit, feel they have no alternative but to turn to Buy Here Pay Here dealers. These dealerships advertise themselves as providing a valuable service to consumers, as they make big profit off the misfortune of others. Prices and interest rates are high, and the chance of having your vehicle repossessed is one in four, allowing the dealership to sell vehicles over and over again.
There is about 160 nonprofit organizations nationwide that try to provide affordable used cars to needy families. Some receive public funds, but for the most part they operate on donations and can help only a small percentage of families that need it. Rep. Gwen Moore (WI-04) has tried for years to get the government to help the poor buy cars. In 2005 and again in 2007, she sponsored legislation to provide $50 million a year for low-income car ownership programs. Both bills were rejected.
Buy Here Pay Here Auto Sales Make Big Profits
People are finding a good investment in a niche of the used car business known as “Buy Here Pay Here” auto sales. In the last two years, investors have bought more than $15 billion in sub-prime auto securities with the hopes of cashing in on profits that average 38% for each vehicle sold. Two of the biggest, America’s Car-Mart Inc. and Credit Acceptance Corp., have seen the biggest gains well above the regular market.
The Buy Here Pay Here vehicle market focuses on helping people buy a vehicle when they can’t qualify for conventional loans. Because the customer is a risk and can’t get a loan anywhere else, the dealership can get away with selling the vehicle for more than it’s actually worth, charge interest rates up to three times the national average, and use aggressive repossession tactics when the customer defaults. Because Buy Here Pay Here businesses are both auto dealers and consumer lenders, it’s not always clear who has authority over them. As a result, each dealership tends to set their own rules.
Although they’re backed mainly by installment contracts signed by people who can’t even qualify for a credit card, most of these bonds have been rated investment grade, some receiving the highest ratings. But so were the financial strategies that drove the nation’s recent housing bust. “We think that investing in such companies is a ticking time bomb,” according to Joe Keefe, chief executive of Pax World Management, “It has ethical as well as systemic risk implications.”
