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Car Loans could be next Subprime crisis

 
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JamCaygirl View Drop Down
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    Posted: Jul 22 2014 at 12:34pm

Car Loans Could Be the Next Subprime Crisis. Thanks, Republicans!

Freed from much federal oversight, used car dealers are taking a spin with the shady practices that helped crash the economy in 2008.

—By Erika Eichelberger

| Tue Jul. 22, 2014 6:00 AM EDT
Gunter Nezhoda/Shutterstock

Would you buy a subprime-loan crisis from this man? A new New York Times investigation reveals that used car dealers are doling out giant loans to millions of poor Americans with bad credit. Many of these dealers are using the same negligent lending tactics that subprime mortgage lenders used before the 2008 financial crisis, including ignoring or fabricating information about borrowers' income, employment, and ability to repay.

Even though this new subprime market is a fraction of the size of the mortgage market, the used-car loan bubble poses substantial risks to banks still recovering from the recession. Delinquent loans are piling up. Banks had to write off an average of $8,541 on each delinquent auto loan in the first three months of 2014, the Times reports. The Office of the Comptroller of the Currency, a federal Wall Street regulator, has warned that banks are taking on too many low-quality auto loans. And it's not just banks that would be affected if too many used car loans go sour. Auto lenders are pooling bad loans just as subprime mortgage lenders did, and then slicing them up and selling them to investors including hedge funds and pension funds.

One of the main reasons car dealers are courting another subprime meltdown is that congressional Republicans pushed to amend the 2010 Dodd-Frank financial reform bill in order to exempt auto dealers from oversight by the Consumer Financial Protection Bureau (CFPB). Granted, lawmakers from both parties were under lots of pressure from dealers as the massive legislation was being drafted. Between 2009 and 2010, the industry spent nearly $8.5 million on lobbying. The industry argued that because it was part of Main Street, not Wall Street, car dealers didn't need to be included in the Dodd-Frank bill, which was designed to prevent the kinds of high-finance shenaBrothans that caused the 2008 financial crisis.

The dealer exemption ultimately "made it into the House bill because Democrats jumped on board," says one consumer advocate who opposed the provision, "but Republicans were certainly the main driver behind the exclusion." Rep. John Campbell (R-Calif.), a former Orange County Saab dealer, proposed the amendment to Dodd-Frank that would exclude auto dealers—his former colleagues—from CFPB oversight. On October 22, 2009, the measure came up for a vote in the House financial services committee and passed 47 to 21. Twenty-eight out of 29 Republicans voted in favor, as did 19 of 42 Democrats. The Senate's version of Dodd-Frank originally did not contain the Campbell amendment. But in May 2010, Republican Sen. Sam Brownback of Kansas introduced a provision that would all but force his colleagues to accept the House's amendment when the two chambers met to hammer out a final bill.

In a speech on the Senate floor, Brownback repeated the industry's line. "There's not a single auto dealer on Wall Street," he said. "None of them. Not a one. You can go up there today and try to buy a car and you can't get one. These are Main Street businesses." The Brownback provision passed 60 to 30, with 37 Republicans, 22 Democrats, and 1 independent (Sen. Joe Lieberman of Connecticut) voting in favor. The dealer exemption stayed in the final bill.

Car dealers are subject to other types of federal financial rules, but if it weren't for Campbell and Brownback's efforts, there'd be another watchdog overlooking shady auto dealers, consumer advocates say. The Federal Trade Commission has the authority to crack down on car dealers, but has not yet done so. The FTC is slower to act than the CFPB, advocates say, in part because Congress controls its funding. The CFPB is financed by the Federal Reserve. (The FTC declined to comment on whether it is investigating car dealers' negligent lending practices, but noted that the agency has previously taken action against dealers "for deceptive and unfair business practices.")

The CFPB can police dealers indirectly through its oversight of auto lenders who pay dealers a commission for making loans. But because the CFPB has no direct oversight of sketchy car dealers, "abuses continue for longer than they should," says Chris Kukla, the senior vice president at the Center for Responsible Lending. Lisa Donner, the executive director of Americans for Financial Reform, agrees. If Republicans hadn't gotten their way, "There'd be a supervisor paying attention in a different way. We might not be seeing what we are seeing now."

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JamCaygirl View Drop Down
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Post Options Post Options   Thanks (0) Thanks(0)   Quote JamCaygirl Quote  Post ReplyReply Direct Link To This Post Posted: Jul 22 2014 at 1:00pm
5 stars and no comments?Ermm
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bunzaveli View Drop Down
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Post Options Post Options   Thanks (10) Thanks(10)   Quote bunzaveli Quote  Post ReplyReply Direct Link To This Post Posted: Jul 22 2014 at 1:42pm
lol people with Brotha credit or just unaware of there options needing to buy cars has been big business for years in the ghetto. in miami, there is 20+ miles of used car dealerships and only used car dealerships right outside of low income housing. no regulation whats so ever. they get these people for 22 to 28% apr on cars, this been going on forever, well before any housing boom and housing crash.







this is on every corner, why do they care now ? because they trying to play that game with white people ?
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Post Options Post Options   Thanks (1) Thanks(1)   Quote afrokock Quote  Post ReplyReply Direct Link To This Post Posted: Jul 22 2014 at 1:50pm
Interesting bunz
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DiorShowGirl View Drop Down
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Post Options Post Options   Thanks (0) Thanks(0)   Quote DiorShowGirl Quote  Post ReplyReply Direct Link To This Post Posted: Jul 22 2014 at 2:04pm
I AM paying at 10.99% and i was told i make 8 straight non-late payments for 8 months they can drop it to 2.99% ..i make two car payments at one time...so far i paid for june/july and at the end of july i am making an aug/sept payment...

my cc wasn't too good and the bank still went ahead and approved the loan(the car dealer had to talk to the bank to get it approved)..i hope i am ok..i am going to talk to the bank on monday and see if that 2.99% will still be in affect after i make my 8 months on time payments....

i can use lower payments..not that i can't  afford it, but this budgeting thing is killing me and my shopping is spent on no more than between 25-50 a month...LOL...i see so many things i want..Cry

sorry for my rambling...Big smile
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texasmami0117 View Drop Down
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Post Options Post Options   Thanks (0) Thanks(0)   Quote texasmami0117 Quote  Post ReplyReply Direct Link To This Post Posted: Jul 22 2014 at 2:23pm
ugh im at the dealership now. i aint tryna hear this smh
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bunzaveli View Drop Down
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Post Options Post Options   Thanks (1) Thanks(1)   Quote bunzaveli Quote  Post ReplyReply Direct Link To This Post Posted: Jul 22 2014 at 2:28pm
Originally posted by afrokock afrokock wrote:

Interesting bunz





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An all-out melee broke out at a South Florida car dealership, leaving one female employee with a bloody face. Surveillance and cell-phone video cameras caught the ordeal that occurred last Wednesday, in its entirety. The screaming and arguing began in an office but would then lead outside and escalate from bad to worse.

A 20-year-old man agreed to buy a car and put down a deposit, but a week later he and his family returned, demanding their money back. "He was looking for something cheap, that he wanted, that he could afford," Peggy, an employee at the dealership, said.

The man put down a $300 deposit and signed all the paperwork. "All sales are final, that he agrees, the purchaser agrees, that this order includes all the terms and conditions and he understood," Peggy said as she explained the contract. "He called me back, said he didn't want the car anymore. I told him, 'Well, I need something in writing stating that you want to cancel the deal.'"

The man returned Monday with an older man, a woman and two small kids. As the confrontation grew heated, Peggy's father began to record it on his camera.


they sell these people cars with 100k/150k/200k miles on it that they brought for dirt cheap at a car auction and completly ignore kelly blue book pricing when they sell to consumers and tack on high interest rates and back door fees and smile in front of you as they pretty much destroying your life.



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ThoughtCouture View Drop Down
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Post Options Post Options   Thanks (2) Thanks(2)   Quote ThoughtCouture Quote  Post ReplyReply Direct Link To This Post Posted: Jul 22 2014 at 2:43pm

yeah bunz.  its predatory lending for sure. 

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PurplePhase View Drop Down
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Post Options Post Options   Thanks (0) Thanks(0)   Quote PurplePhase Quote  Post ReplyReply Direct Link To This Post Posted: Jul 22 2014 at 2:44pm
^^yep. They've been at it a long time too.
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mzsophisticated View Drop Down
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Post Options Post Options   Thanks (0) Thanks(0)   Quote mzsophisticated Quote  Post ReplyReply Direct Link To This Post Posted: Jul 22 2014 at 2:45pm
Yeah i know a few folks with 21-25% interest rates with subprime lenders or buy here pay here places like drive time. I am so glad the highest interest rate I ever had on a car was 8.25% and i was 21 yrs old.
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