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Car Trouble: A Subprime boom, insane interest rates, Predatory Lending, A Private Equity Frenzy...
http://www.motherjones.com/politics/2016/04/car-subprime-bubble-auto-loans-credit-acceptance-don-fosssnip
While the subprime auto market is nowhere near large enough to bring down the economy, there are unmistakable parallels to the mortgage debacle. Delinquencies and repossessions are on the rise industry-wide, and there have been reports of falsified loan applications. At least eight banks have come under scrutiny for allegedly jacking up interest rates on black and Latino car buyers. Big players including Ally Financial and Fifth Third Bank (America's ninth-largest bank) recently paid out nearly $200 million to settle such accusations. "Auto loans are now the most troubled consumer financial product," Sen. Elizabeth Warren (D-Mass.) noted last spring. "The market is now thick with loose underwriting standards, predatory and discriminatory lending practices, and increasing repossessions."
snip
Three years later, when a Wall Street Journal reporter arrived in Michigan to profile Foss and his business, it wasn't uncommon to find customers saddled with interest rates as high as 30 percent. Borrowers typically paid twice what the car had cost the dealer, the paper reported, and often those vehicles didn't outlast the loans that financed them. Eventually, Credit Acceptance and other subprime lenders would even start requiring borrowers to install starter kill switches that allowed the companies to incapacitate their vehicles from afar, "pretty much guaranteeing that the car loan is the first one people pay every month," a former Ford finance manager told me. Credit Acceptance now finances sales for thousands of used-car lots across the United States, and Foss' success has inspired any number of imitators: Capital One, Santander, and Wells Fargo are just a few of the big players that piled into the business of extending car loans to desperate people at borderline usurious rates. "The thing I didn't realize about going public is that you tell everybody how your business works," Foss cracked in one interview.
snip
In legal briefs, Credit Acceptance countered that Fielder and the other plaintiffs had been presented with the terms in writing and had affixed their signatures to a legally binding contract. No one had held a gun to their heads. Amid the back and forth, Irwin and Brown obtained documents showing that in the mid-'90s nearly 80 percent of Credit Acceptance's Missouri customers were more than 90 days delinquent—an astonishingly high number. (The current 90-day delinquency rate for specialized auto financiers is about 5 percent.) Many of those 14,000 plaintiffs had been sued individually by Credit Acceptance and hit with court judgments inflated, the lawyers charged, by improper fees. "You'd look at one of these cases and it was like a law school test where the professor had you look through the paperwork to see how many violations you find," Irwin said. The most obvious: charging past-due customers a higher interest rate than the contract stipulated.
snip
Credit Acceptance's own records show that Peel spoke to 111 separate people in its call center over two years. Never once was she granted access to a supervisor, despite her pleas and the occasional promise of a callback. She felt helpless, she told me. Without a title, she couldn't drive the car legally and she couldn't sell it. And with her credit tied up in the Taurus, it's not like anyone would loan her the money for another car. "I'm very, very polite," she said. "I come from a good family. But I got pissed off. I got a little crazy a couple of times."
This is a long article, but really eye opening.
10 replies
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After having been stuck in various messes for years. Maybe its worth it for some people, but its hard to imagine. I paid too much for one vehicle, then there was no way to sell it and pay off the loan so I traded it through for another, then another, each time slightly more screwed. What finally got me out of that cycle was that the car got impounded when I was transferred to a state where the lease terms (third trade "up"
didn't allow me to register the vehicle. It was shipped back to the west coast and auctioned and I was handed a bill for the $9,000 difference. I just said "screw it", declared bankruptcy rather than have wages garnished for years. The laws were easier on that kind of thing then.
