New York’s Julie Menin: Tackling Predatory Car Lenders

New York’s Commissioner of Consumer Affairs, Julie Menin, is determined to protect New Yorkers from predatory auto lending practices. Desperate used car buyers have been complaining to the agency, after they were cheated by unscrupulous car dealers who charged exorbitant interest rates for cars that often broke down soon after purchase, leaving them with ruined credit, deeper in debt, and without wheels.

According to the New York Times, auto loan debts sink many New Yorkers financially, averaging more than $12,000 — a burden that can prove impossible on an average annual income of just $36,000. Plus dealers commonly tack on high-priced add-ons that inflate the loans, without adding any value.

In response, the Department of Consumer Affairs is developing a “municipal auto loan initiative,” to allow troubled borrowers to get auto loans directly from a number of lenders on more consumer-friendly terms. This innovative approach promises to provide New Yorkers with lower-cost, less risky access to the cars they need to get to work.

The Department is insisting that interest rates on the loans be fixed, at 16% or less, and that any application fees may not exceed $25.

CARS wishes New York and its courageous pro-consumer Commissioner Julie Menin great success. We hope that this innovative new program thrives and helps lift up thousands of New Yorkers who would otherwise fall prey to dealers itching to exploit them.

Read more:

New York Times: New York City Starts Car Loan Program to Curb Abusive Practices

 

 

 

 

 

 

 

 

Ally Bank ordered to pay $80 million to consumers harmed by discriminatory lending

More than 235,000 African-American, Hispanic, and Asian Pacific Islander borrowers, who were charged higher interest rates on their auto loans from Ally Bank, based on their race, stand to get back $80 million, thanks to courageous action by the Consumer Financial Protection Bureau and U.S. Department of Justice.

The consumer protection and law enforcement agencies are coordinating their efforts to curb discriminatory lending in auto loans, which cost car buyers billions of dollars in hidden extra fees, while fattening the profits made by lenders and auto dealers. This is the government’s largest auto loan discrimination settlement ever.

“Discrimination is a serious issue across every consumer credit market,” said CFPB Director Richard Cordray. “We are returning $80 million to hard-working consumers who paid more for their cars or trucks based on their race or national origin. We look forward to working closely with the Justice Department and Ally to make sure this serious issue will be addressed appropriately in the years ahead as well.”

Read more: CFPB and US DOJ order Ally to pay $80 million to car buyers

 

“The financing fell through” — car deals gone bad

It’s a consumer transaction like no other. When you buy any other product or service, once you’ve signed on the dotted line, the seller can’t unilaterally change the deal. But then you set foot on a car dealership lot, and it’s like you’ve entered a parallel universe where suddenly the rules of the road no longer apply.

No other shopping experience in your life prepares you for what auto dealers try to pull. It’s called “yo-yo” financing. It’s a shady practice that has made headlines nationwide, and is becoming notorious, but continues to happen at auto dealerships every day, all across the country.

You negotiate to buy a car. You reach an agreement. You make a deposit and trade in the car you own. You are then sitting across the table from the Finance Manager, who is all smiles and claims to be on your side. He says he’ll get you the “best terms” on a car loan. He shows you the federally required Truth in Lending disclosures. Total amount financed. Monthly payment.  You look it over, it appears to be reasonable, and you sign the Retail Installment Contract. The salesman hands you the car keys, and off you go, in your newly acquired car. Life is good.

But then a week or two later, you get a phone call from the dealership. They say that the financing “fell through.” They want you to go back and sign another contract. On worse terms. The interest rate you agreed to was 4%. Now they want to charge 16%. Or 20%. The monthly payment was a manageable $240.  Now it will shoot up to $480.   They claim that your credit isn’t as good as they thought. Which makes no sense, since they pulled your credit report before financing the car. Given electronic communications, they knew within seconds what rate you qualified to get.

What they’ve done is known as “de-horsing” — a term that harkens back to horse-trading days. Their goal is to get you out of the car you own, and take you out of the market and trap you into a deal with them. Once they have your trade-in and down-payment, chances are good you can’t just go somewhere else and buy a car on better terms.  They have you over a barrel.

If you balk at signing the new contract, they will threaten to report it as stolen.  Or they’ll threaten to repossess the car, and ruin your credit. If you drive back to the dealership in your newly purchased vehicle, they may park cars on both sides and behind it, to block you from being able to leave, until you sign the new contract. Typically, they refuse to return your deposit. They also claim they already sold your traded-in car, even though it’s actually sitting on a back lot.

You feel trapped into signing, even though it will cost you thousands more than you had initially agreed to spend.

This is the twisted world of “yo-yo” financing. The dealers claim that the financing “isn’t final” — even though you reached an agreement and signed a contract.

The ONLY way to make sure you don’t fall into the yo-yo trap: NEVER, EVER get a loan from a car dealer. Always get your own pre-approved loan. And don’t fall for it if the dealer claims it will get you better terms. Because those can change after you drive off the lot.

CARS recently heard from a consumer, Michael L., who was being scammed by a major car dealer in Sacramento. He and his fiancee are expecting their first child in a few months and wanted a bigger car.   Michael had pre-qualified for a loan at around 10%. He had the check, from Capitol One, in hand.  The dealership finance manager promised a lower interest rate. Thinking he could save some money, Michael agreed to go with dealer financing. Then came the phone call — sorry, the loan “wasn’t approved” at the lower rate. The dealer demanded that he pay 18%.  So instead of paying $23,000 for the loan, Michael was going to have to pay over $30,000 to finance the same car.

He contacted CARS and we brought his case to the attention of a major national news organization. When the dealership found out about the potential news coverage, it backed down and Michael got to keep the car on the original terms. He said he’d learned his lesson — never trust a car dealer, especially not on the financing.