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Auto Finance Rip-Offs:  What is happening and what can we do to stop it?

Learn about common auto lending abuses such as loan markups, yo-yo scams, and "Buy Here, Pay Here" schemes. Discover how dealers manipulate interest rates and tactics like loan packing to deceive consumers. Find out how to protect yourself from these predatory practices.

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Auto Finance Rip-Offs:  What is happening and what can we do to stop it?

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  1. Auto Finance Rip-Offs:  What is happening and what can we do to stop it? Americans for Financial Reform webinar November 8, 2012

  2. Common Auto Lending Abuses • Auto loan markups • Yo-Yo sales • Loan packing • "Buy Here, Pay Here" scams

  3. Auto Lending Abuses • Dealer markup/dealer reserves: • Dealer has discretion from third-party lenders to increase the interest above the rate for which the car buyer qualifies. • Dealer takes part or all of the proceeds from the increased rate. • Similar to yield spread premiums that mortgage brokers used to charge on mortgage loans. • This practice alone adds $25.8 billion in hidden interest over the lives of many car loans.

  4. Auto Lending Abuses • Yo-yo Scams: • Dealer sends consumer home with car before financing is complete, • Consumer is brought back to the dealer with the car, • Consumer is told that interest rate will be much higher than previously thought, • When consumer tries to rescind deal, told that trade-in has been sold and/or down payment is non-refundable. • Consumer who does not return the car threatened with repossession and/or criminal charges (theft).

  5. Tactics Used in Yo-Yo Scams Source: CRL Report - Deal or No Deal

  6. Auto Lending Abuses • Loan packing: • The practice by which dealers add various types of aftermarket, “add-on” products that are usually unnecessary and overpriced in order to increase the price of the vehicle or the amount financed. • “Add-on” products include rust proofing, tire and wheel protections, paint sealant, extended warranties, security systems, insurance products, etc.

  7. Auto Lending Abuses • "Buy Here, Pay Here" scams: • Typically finance used auto loans in-house to consumers with no or poor credit histories. • Use their higher default and repossession rates to operate much like payday lenders; using same vehicle several times as the basis for their abusive business model.

  8. Contact Information: Ellen Taverna Legislative Director National Association of Consumer Advocates 202-452-1989 ext 109 ellen@naca.net

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