The State of Lending in Americaand its Impact on U.S. Households
Auto Lending
Delvin DavisDecember 12, 2012
©Center for Responsible Lending
Auto Lending Affects Millions of Americans
America households owe over $700 billion in auto loans.
17.4 17.2 16.9 16.7 16.8 17.0 16.5 16.2 13.3 10.4 11.6 12.8
41.6 42.6 43.0 43.6 42.7 44.1 42.6 41.6 36.5
35.5 36.9 38.8
0
10
20
30
40
50
60
70
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Number of Cars Sold in the U.S. (millions)
New Sales Used Sales
Three Types of Auto Financing
1. Dealers arrange financing through their Financing and Insurance office – 80% of car buyers go this route
2. Car buyers obtain financing directly from a bank or credit union
3. “Buy Here Pay Here” dealers finance and service loans in-house
Most Common Predatory Practices
Most Common Predatory Practices
Most Common Predatory Practices
Most Common Predatory Practices
Consumer Financial Protection Bureau and the Federal Trade Commission are investigating these and other consumer concerns
Dealer Interest Rate Markups
• Dealers have incentive to inflate the loan interest rate to increase their commission.
• Markups cost US consumers $25.8 billion each year.
• Rate markups are correlated with• Loans from subprime auto lenders• Higher odds of default and repossession
Yo-Yo Scams
• How it works:• Dealer allows buyer to leave with a car “on the
spot” even though financing is not finalized.• Dealer later requires buyer to return and
negotiate a new (and more expensive) deal.• Buyer cannot back out of deal, because their
trade-in has already been sold
• Consumers in a “yo-yo” pay rates 5 percentage points higher than otherwise.
• Low-income and poor credit borrowers are more subject to yo-yo’s.
Loan Packing
• Overpriced add-on products that quickly inflate overall cost• Vehicle service contracts• Guaranteed Auto Protection (GAP)
insurance• Credit life and disability insurance• Theft deterrent systems• Custom upgrades and accessories
• African-Americans and low-income more likely to have add-on products in their deal.
For More Information
See all CRL research on Auto Lending:http://rspnsb.li/PPGdAg
Contact us:Kathleen Day (DC): 202-349-1871Graciela Aponte (CA): 510-379-5518Ginna Green (SC): 510-866-5989
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