Auto Seller faces fine
Many Americans enter auto loans that are “junk”. Many of these junk auto loans are considered predatory. Americans increasingly want to obtain things now and pay for them later. One example is a motor vehicle buyer entering a 72 month loan on a two-year old vehicle. Let’s assume the loan is for a two year old car with 25,000 miles on it, with a loan term of 72 months. According to Department of Transportation data the average male between the age of 35 and 54 drives 18,858 miles each year. In this case the vehicle which originally had 25K miles (18,858 x 6 years = 113,400) will have about 138,000 miles on it when the loan is paid. In many cases these cars are basically junk vehicles & scrap cars before the loan is paid. In Cleveland, an 8 year old car may develop body rust, have suspension related problems & often need a new transmission beyond 100,000 miles. When adding these up (body work $350, suspension $350 & transmission $2,200) we arrive at $2,900 in work needed in addition to the maintenance items that need work every 2-3 years like brakes, radiator, battery, alternator, starter & tires. It’s easy to see that toward the end of the loan, this car owner could have a year where they need to spend $6,000 to keep the car running. Since the vehicle owner likely lacked a good down payment & was paying 15%+ interest on the loan, it’s possible that the seller simply “walks away” from the vehicle, only to re-enter another junk car loan, thus repeating the cycle.
On November 20, 2014 in a Huffington Post article by Hunter Stuart titled ‘Used Car Dealership Hit With $8 Million Fine for Allegedly Harassing Customers’ he reports the following; “Elizabeth Warren’s watchdog agency is cracking down for the first time on a used car dealer that also acted as an auto lender for allegedly harassing customers who were late on their payments. The Consumer Financial Protection Bureau, conceived by Sen. Warren (D. Mass.) during the financial crisis, fined Phoenix-based DriveTime Automotive Group, Inc., the country’s largest “buy here, pay here” lender, $8 million. ‘Buy here, pay here’ companies sell used cars, but consumer advocates say they operate more like subprime lenders. The companies offer customers with poor credit ratings auto loans with interest rates that can top 30 percent. People who buy cars at these types of dealerships usually return to the lot to make payments, often in cash.” According to John Van Alst, director of the National Consumer Law Center, “When a customer defaults the company can repossess the car & resell it again, often numerous times.” The report goes further as follows: “DriveTime would repeatedly call customers who fell behind for payments, according to the settlement. It called people at work, risking them getting fired. One DriveTime customer was called 30 times at work by the company’s collectors, even after the customer had asked them to stop, according to documents. The CFPB charged that DriveTime management actually encouraged this tactic. At DriveTime, where at any given moment about 45 percent of customers were delinquent on their payments.” This story certainly is an example of how many of Americans continue to rely on credit, even when they are aware that they are entering into agreements that are bad as a consumer.
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