After Le-Eunice L'Minggio paid a $1,200 down payment and got a financing plan approved for a $8,000 car from Thrifty Car Sales in Melrose Park, IL, she thought that was the end of negotiations on her loan terms. However, USA Today reports, she got a strange call a few days later. The dealership’s finance manager told her she would have to lie to the finance company about her financial situation in order to get a loan. L’Minggio refused and returned her car, but couldn’t get her down payment back. She went to court and won $13,200 in damages, but when her lawyer went to collect, the dealership was out of business.
L’Minggio’s story illustrates why it is so important that all automobile financing must be regulated by the consumer protection agency proposed by the House and Senate as part of the larger financial reform packages, regardless of whether that loan is made by a bank, credit union, or auto dealer. Woodstock opposes any exemptions for auto dealers from the consumer protections and regulations that will be issued by a new federal consumer protection agency.
Too often, car loans have extremely high interest rates and are packed with unnecessary products or fees. A recent Woodstock Institute survey of consumer installment lenders making used car loans in the Chicago region found rates as high as 177 percent to borrowers making less than $22,000 a year. Some car dealers also engage in deceptive practices such as "bait-and-switch" financing, falsification of credit applications, and sales of overpriced add-on items. Not surprisingly, predatory car loans typically rank first among consumer complaints lodged with state and local consumer protection agencies and the military.
One of the primary reasons that banking regulators failed to adequately crack down on the unsafe or unsustainable loans that led to the financial crisis was that too many different regulators were charged with overseeing functionally equivalent products. While auto lenders did not cause the current financial crisis, the new consumer financial protection agency must be empowered to detect the problems before they balloon into a crisis. We believe that all auto loan borrowers deserve the same consumer protections and that all auto lenders should be regulated by the same agency that oversees car loans made by banks and credit unions. A loan for a car is a loan for a car, regardless of which entity makes the loan.