California Lawmakers Targeting Buy Here Pay Here Used-Car Lots

Buy Here Pay Here used-car lots may soon find themselves under new regulation in California. The proposed legislation, SB 956, aims to stop the practice of what some are calling predatory lending that occurs each time these dealers finance car purchases through the offering of payment plans.

While introducing the bill on January 9, State Senator Ted Lieu (D-Torrance) said, “What Buy Here Pay Here dealers are doing is in fact a form of lending. They’ve been able to fly under the radar and not comply with lending laws.”

Opponents to the lending that is done by these used-car salespeople say that consumers are often charged up to triple the value of cars and asked to pay interest rates that can be more than 30% per annum. If the bill passes, which is likely in California, the buy here pay here car lots in question will be forced to file annual reports to the Department of Corporations and pay annual license fees of amounts that have yet to be determined.

Car Loans Galore Ruffles Used Car Feathers

Car Loans Galore specializes in arranging auto loans for people with poor credit. The company, in a move to help people make responsible auto buying decisions, launched a series of educational videos. That video series seems to have ruffled more than a few feathers within the used car dealer segment.

The company has received a large volume of letters requesting that they stop producing the videos. The next video is set to focus on the tricks that used car salesmen use to boost profits. ”We did not enter into this endeavor to slander or demean an entire industry segment, what we are aiming for is the proper education of the consumer. We don’t just stick to instructions and warnings on buying a used car; we cover new car buying, car loans, etc. Our intention was truly not to ruffle anyone’s feathers, but if these guys are getting riled up at us telling the public the truth; then perhaps they are afraid of being exposed. They apparently have something to hide from the consumer,” said a company spokesman.

With Car Loans Galore digging in its heels about the video series, it may be interesting to see how things shake out. Be sure to stop back here for future updates on the story.

Is The End Of Paper Titles Nigh?

That paper title that insured you knew who held all liens against your vehicle or was proof that the title was free and clear may become an antique in the near future. The program that will replace it is called electronic titling (ELT). ELT’s are said to save money and manpower, so they are becoming more popular with cash strapped governments.

At this time the ELT only deals with transactions between the DMV and a lien holder. The transactions will all take place online. That will save storage space, man hours tracking the paper titles, and, well, paper. The DMV saves money and so does the bank.

Once you free the title from a loan, you will still receive your paper title. That is one reassuring aspect. Proponents claim that it will cut down on fraud. Apparently they have never heard of hacking, so it may not be a bit more safe than a paper title. While the ELT is for DMV/lender transactions now, how long will it be before the paper title goes the way of the pony express and affordable gas?

GPS Vehicle Recovery Systems – Invasion of Privacy?

Over the last several years, more and more BHPH car dealers have turned to GPS tracking devices in order to facilitate vehicle recovery in the event of non-payment.  The prevalence of these devices was given a further boost by the down economy, in which dealers were struggling to stay profitable with so many more customers defaulted on their payments.  Although perceived by dealers and financiers as an essential tool, the GPS tracking trend has led, in turn, to worries on the part of some consumers as to whether GPS tracking of this kind is an invasion of privacy.

Of course, the titled to any vehicle being financed is owned by a buy here pay here dealer or auto finance company who funded the loan until it has been paid off, so dealers and financiers do have the right to track the location of their assets.  However, that doesn’t necessarily provide comfort to Joe The Consumer, especially in the USA where freedom and independence are so highly valued.  But there is another small detail which may set many minds at ease:  the fact that the majority of GPS tracking devices remain inactive unless a buyer defaults on his or her payments.  So dealers are not sitting around “big-brothering” their clients.  On the contrary, in many instances the dealer must pay a hefty charge just to activate the device, so they only do so when absolutely necessary – as in when a vehicle must be repossessed. 

2010 Bankruptcies Were Up – But Rate Has Lessened

On the bankruptcy front, there is good news and bad news as 2010 final statistics have come rolling in.  According to the American Bankruptcy Institute, there were 119,406 more filings in 2010 versus 2009.  That represented an increase of 8%.  That might sound disheartening, but if you look at these figures with a historical perspective, there is a silver lining. 

2010 marked the first time in the last three years that the increase in bankruptcies from the previous year wasn’t more than 10%.  What can we attribute to this slow-down in bankruptcy filings?  Experts say that US consumers have very much tightened up their spending in line with our tough economic climate, and that lessened spending is translating into fewer bankruptcies.  This can be seen especially in the realm of business-related filings, which were actually down by nearly 8%. 

In any case, the market for post-bankruptcy car financing is still growing, as consumer filings (more than 70% of which are Chapter 7) continue to rise.  That means more business for Buy Here Pay Here car dealers.

Fall Auto Sales on the Rise

The US automotive industry – particularly the new car segment – seems to be picking up steam, and that’s good for the whole economy. Last month, the vast majority of automakers reported significantly increases in auto sales. In fact, the following four companies set best-ever sales records for the month of October:

  • Audi
  • Hyundai
  • Kia
  • Subaru

Additionally, Suzuki, a company which has been seriously suffering in both motorcycle and auto segments, reported a year over year rise in sales for the first time in more than 2.25 years! The US automakers also put up great numbers, with the big 3 (Chrysler, Ford, General Motors) posting increases of 30% or more! For shoppers looking at the used car market for their next auto, this is a good sign. The slowdown in new cars sales has meant fewer cars being funneled into the pre-owned market, which has in turn resulted in increased used car prices. With more people buying new cars, more vehicles will end up on buy here pay here lots, which will reduce scarcity and bring down prices – a win/win for everybody!

Nissan Recalling 2.14 Million Cars (Worldwide)

We recently reported on the Toyota recall currently in progress. Now Nissan has announced a recall of their own:  762,000 vehicles in the US and Canada, as well as another 835,000 in their home country of Japan. The vehicles span more than a dozen different models, including the Titan pickup truck and Infiniti QX56; all models were built between August 2003 and July 2006.

Reportedly, the problem relates to a faulty ignition component which could lead to stalled engines. Nissan says the relay should take no more than 25 minutes to fix. If you were planning to purchase a vehicle via Buy Here Pay Here financing, be sure to determine whether the ignition system needs to be addressed as part of this recall. With winter and cold weather fast approaching in many parts of the US, a stalled engine could lead to serious trouble.

Wal-Mart Auto Loans?

Apparently, many credit unions and smaller banking & lending institutions are nervous over the fact that Wal-Mart seems aimed to enter the financial services arena. In 2007, Wal-Mart failed to gain a formal banking charter. However, they have still begun to offer a range of banking services at some stores via US MoneyCenters. According to the recently-published Fine Research Report, Wal-Mart will be targeting:

…young, blue collar, early-career shoppers who come for the low prices and choose the plastic card.

Services Wal-Mart may ultimately offer include:

  • Auto Loans
  • Small Business Loans
  • Demand Deposits

The strength of the Wal-Mart brand could make them highly successful in this field, as well as the convenience and cross-selling opportunities they can offer.  The most worry seems to be coming from credit unions, who traditionally marketed to the aforementioned demographic. Buyers with very poor credit will still need options such as Buy Here Pay Here financing, which de-emphasizes credit score in favor of ability to pay.

Toyota Recalling 740K US Cars

Toyota has been having a tough year with recalls. Everyone remembers the involuntary acceleration problems from early in the year, and in August more vehicles were recalled for problems with engines stalling.  Now Toyota is notifying the owners of more than 740,000 vehicles in the United States that they need to bring in their vehicles to fix a problem which could degrade braking performance over time. In the majority of models, the issue is tied to the master cylinder, which could slowly leak brake fluid over time.

The following US models could be affected:

  • Toyota Avalon (2005-2006)
  • Toyota Highlander (non-hybrid, 2004-2006)
  • Lexus RX330 (2004-2006)
  • Lexus GS300 (2006)
  • Lexus IS250 (2006)
  • Lexus IS350 (2006)

If need be, check with the buy here pay here car lot through whom you financed your vehicle if you are unsure whether or not it is affected. Toyota is, of course, correcting this problem free of charge.  They have been taking pains to really increase their quality-control guidelines and response time to such safety issues.

Increased Success in Preventing Car Loan Fraud

The US Treasury’s Financial Crimes Enforcement Network, or FinCEN, has recently published a report which shows that dealer and finance company staff have been making great gains in reporting and preventing auto loan fraud.  The study included an in-depth analysis of SARs (Suspicious Activity Reports) that cited identity theft.  The percentage of these reports that featured an attempt to employ identity theft in pursuit of car loan fraud dropped significantly in 2010.  Here’s the year-by-year stats:

  • 2004:  5%
  • 2006:  17.5%
  • 2007:  18%
  • 2008:  19%
  • 2009:  10.5%

FinCEN reports that this data reflects greater success in identifying fraudulent loans on the part of dealers, lenders, and buy here pay here car dealerships.

Identifying Identity Thieves

In 27% of cases, FinCen found that the perpetrator of the identity theft was a…

  • Family Member
  • Friend
  • Acquaintance
  • Employee in Victim’s Home

For the full report, please visit www.fincen.gov.