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Auto debt in the United States has surpassed $1.68 trillion. Some of that can be traced to predatory lending practices.
A bipartisan coalition of state attorneys general, including North Carolina’s Jeff Jackson, recently reached a settlement with Credit Acceptance Corp., a national auto finance company. Borrowers in the state will receive $9.5 million as part of the settlement, in which Credit Acceptance admitted no wrongdoing.
The allegations against the company, however, are not uncommon. A June report from the Durham-based Center for Responsible Lending found that some drivers deal with price discrimination, interest rate markups, weak underwriting, add-on product financing and aggressive repossession tactics — issues that researchers at the center identified in the 2010s.
Buying a car can be a stressful experience for anyone — especially for people with poor credit and low liquidity who urgently need a car, said Alex Rogers, one of the study’s authors.
“They often made the tough decision to agree to a loan contract, even if it didn’t seem in their best interest,” Rogers told me in a video interview. “And then what folks often shared in hindsight was like, ‘I wish I would have found another way.’”
The study involved interviews with 18 participants who had a credit score of 660 or lower and took out a car loan with a finance company — Bridgecrest, Credit Acceptance, Exeter or Santander Consumer. Most of the participants identified as female, Black, between ages 45 and 65, and with a household income below $60,000.
They described high-pressure car-buying experiences. Some were told by dealership employees that they wouldn’t get any other deals, or that no one else would finance the vehicle, Rogers said. They were told lenders wouldn’t make loans unless the borrowers also purchased additional warranties or other optional add-on products. Some were told that they needed to buy the vehicle today, because it would be gone tomorrow.
“There’s always another car. There’s always another lender who will make you a loan — whether it’s a good loan or not, it does exist,” Rogers said.
Borrowers who fell behind on payments faced additional fees or deferments, which let them skip a payment, with the amount added to the end of the loan, plus interest.
In some cases, lenders repossessed vehicles the same day borrowers fell behind on payments. One graduate student from North Carolina dealt with a “kill switch,” an interrupter device that can remotely disable a vehicle, with no warning for the driver.
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Still, Rogers pointed out, many borrowers did whatever they could to dig their way out of financial holes, by taking second jobs, cutting expenses or moving to lower their rent payments.
“These predatory auto loans are hugely disruptive, such that people are making massive changes in other areas of their personal financial lives to accommodate them,” Rogers said.
Based on the research, the Center for Responsible Lending came up with several recommendations to help protect borrowers. Here are a few of them:
There are also steps borrowers can take to help protect themselves from high-pressure sales strategies when they’re buying cars.
Rogers recommended that prospective buyers don’t tell dealership employees what their budget is. That way, it’s harder for them to sell you a loan packed with unnecessary add-ons, priced at the most you’re willing to pay, Rogers said.
Focus group participants suggested bringing a trusted adviser with them to the dealership. Rogers said it can also be helpful to take breaks, leave the dealership and return later, and if possible, get pre-approved for an auto loan directly from a major lender, such as a large bank.
“For folks who can get approved in this way, it cuts out a huge amount of the stress and the pressure of buying a car because there’s effectively no financial negotiations,” Rogers said.
Full story: Are you among 1,300 North Carolina car buyers set to get $1,435 back on your loan?
Here’s what to know about the recent settlement with Credit Acceptance:
The summary points above were compiled with the help of AI tools and edited by Dave Hendrickson and Renee Umsted, who reported, wrote and edited the full story in the link at top.
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