WASHINGTON — Many car buyers are having the same kind of trouble obtaining and paying off loans that plagued America's housing market, new data show.
Some 3.25 percent of all indirect auto loans were at least 30 days overdue in the third quarter, the American Bankers Association reports. That's the worst showing since the group began compiling such numbers in 1980. Indirect loans are those arranged by a third party, typically an auto dealer, and they account for 90 percent of all car loans.
"Many car buyers have fallen victim to many of the same subprime, predatory lending practices that have caused so many home foreclosures and our current economic recession," said Rep. Doris Matsui, D-Calif.
Not only are their payments starting to lag, but "evidence suggests that fraudulent practices with regard to both the condition and financing of used cars are on the rise," said Rep. Bobby Rush, D-Ill., the chairman of the House Subcommittee on Commerce, Trade and Consumer Protection.
He and others, including the National Consumer Law Center, say this trend is affecting the poor disproportionately.
"For poor and working class Americans who do not own a home, automobiles are usually the single biggest asset they possess," Rush said.
The Boston-based National Consumer Law Center spelled out in a new report how used car buyers in particular face increasing problems.
"Policies currently in place are generally insufficient to protect consumers when buying and financing a used car," the report said. The center found financing for such vehicles "needlessly complicated and time consuming in order to confuse buyers and enable dealers to charge excessive prices and fees for the car and financing."
Buyers with bad credit, for instance, have been subjected at times to "yo-yo sales." In such cases, a dealer would send a customer off the lot in a newly bought car. The dealer then calls the customer several days later to tell him the financing couldn't be arranged at the original terms.
The consumer is told he must sign new papers at a higher interest rate, or other unfavorable terms. Should he try to cancel the deal, the center said, he's often told he can't.
"Often the customer is in no position to refuse the new onerous terms," said John Van Alst, a center attorney.
Federal regulators said they're aware of the complaints.
"These reported practices are troubling and may indicate criminal fraud," said Eileen Harrington, the acting director of the Federal Trade Commission's Bureau of Consumer Protection.
She said the FTC would "continue to gather information about such practices and evaluate" whether potential fraud should be pursued by state and federal officials.
Auto interests say that most dealers are honest and have no intention of taking advantage of anyone.
Car sales are "one of the most heavily regulated and complicated industries in America today. A host of state and federal laws impact every motor vehicle transaction," said Keith Whann, the general counsel for the National Independent Automobile Dealers Association.
Lenders say that they're hardly eager to make bad loans. "I personally haven't heard of banks doing fancy loan terms," said Carol Kaplan, an American Bankers Association spokeswoman.
FTC and Justice Department officials say that their consumer protection efforts are effective, but consumer groups counter that buyers' woes go beyond financing and involve the product itself.
Too often, consumer advocates said, people buy used cars without knowing all about them. They buy the car with a loan that stretches out for several years and then are unable to pay for repairs or maintain the car.
The FTC requires dealers to post a Buyers Guide on a car, telling the consumer about its warranty and other information. The FTC also enforces the Used Car Rule, which bars dealers from misrepresenting a used car's mechanical condition.
Consumer groups want more — they want to expand the reach of the National Motor Vehicle Title Information System. It provides consumers with more thorough data on a car's history, and is available through the Internet.
The system, which was established in 1992, has faced three problems: Only 27 states are contributing data, not everyone is Internet-savvy and consumer advocates think the system offers too little information. It isn't as thorough as Carfax vehicle history reports, which cost money.
All states must participate by January, but increasing the amount of data has proved to be a thornier matter. Information is uploaded once a month, and the system doesn't deal with airbag deployment and other issues.
Whann said that one problem in providing data is that information on a car's window sticker can change hour by hour as dealers get new data. If they're unable to post it quickly, consumers could protest and dealers could face legal consequences.
The vehicle information system saves taxpayers considerable money each year, according to a study conducted for the Justice Department by the Logistics Management Institute, a nonprofit consulting firm.
Since 2004, the FTC has given out more than 175,000 copies of its 14-page "Used Car Guide," which explains warranties and inspections and urges people to get an independent inspection before buying a car, Harrington said.
ON THE WEB
National Consumer Law Center report on used car sales and financing
American Bankers Association report on consumer loan delinquincies
TransUnion.com report on consumer loan delinquencies
Mortgage Bankers Association report on home mortgage delinquencies
National Independent Automobile Dealers Association information
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