It’s the nature of capitalism today. Once one area is sucked dry or the predatory scheme is uncovered these predators move to another area. Now, the predators have moved on to auto loans.
Center of Public Integrity’s released a very informative report called Buyer beware. Here are a few excerpts from the report (I strongly encourage people to read the entire report):
The politically powerful industry has also mastered a few high-pressure tactics of its own. Chief among them is the “yo-yo,” where dealers let buyers drive a new car home in hopes of locking them into a deal and later tell them their financing fell through. The tactic can lure buyers to accept a higher interest rate.
And while the financial crisis rendered subprime mortgages extinct, Wall Street is once again buying up bundled subprime auto loans, fueling a market aimed at the most vulnerable consumers and relieving dealers of the risks of making bad loans.
While the consumer thinks the negotiations are over at that point, dealers know that a lot more profit can be made off the financing.
For starters, dealers routinely jack up the interest rate on a loan and split the profit with the lender. So if you qualify for a 4 percent loan, the dealer will say the best he can do is 7 percent. Half of the extra profit goes to the dealer as a “markup.”
Buyers never know they’ve been charged more because the markup usually isn’t disclosed. The Center for Responsible Lending calls these “kickbacks” and calculates that they cost car buyers $20 billion a year.
It should be no surprise that new Consumer Financial Protection Bureau is powerless against these predators. The auto dealers/lenders secured an exemptions from the new consumer protection law. Money speaks volumes in Washington.
The best defense is the best offense against predatory lenders. We have to arm ourselves with information and an understanding of what the predatory practices are so that when we experience them we know to just walk away. The Center for Responsible Lending has a wealth of information about auto loans and the predatory practices. Please check them out before making that next auto purchase.
Another thing: if you don’t know or not sure about something - ask someone before you sign on the line (other than the dealer) - a neighbor, friend or us. We can no longer expect or afford to wait for our government to protect us from predators. We are in this together.
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