Repo Man Aided by Technology
Recently there has been a lot of discussion in the press about subprime auto loans and how the lenders are taking advantage of consumers – many of whom have recently had their debts discharged in bankruptcy – with high interest rates, excessive fees, and aggressive collection practices. Some have compared this to the sub-prime mortgage market that made consumer loans that were unlikely to be re-paid then packaged them up for sale to unsuspecting institutional investors. When the housing bubble burst in 2008, you know what happened.
Auto loan lenders are making high-interest loans to people who cannot qualify for a conventional loan. These loans come with significant fees in the thousands of dollars which result in very high monthly payments for old, used cars that often become major maintenance headaches.
Worst of all, these loans are made to people who have recently filed bankruptcy and therefore can’t yet qualify for a decent loan and – get this – when they can’t pay, they can’t discharge the debt because they are barred from another bankruptcy for eight years.
Unscrupulous Auto Lenders Prey On Desperate People.
A typical car sale might go like this: Rhonda, who just got a fresh start on her financial life by filing bankruptcy last year, is denied for a car loan at a new-car dealer but she really needs a car to get to work every day and to take her kids to day-care. She winds-up at a local used car deal where they have a sign that reads BUY HERE PAY HERE, NO CREDIT – NO WORRIES. Rhonda finds a used car for with a price of about $5000. She applies for a loan at the dealer and they tell her they can get her a loan, take the car today and we’ll follow-up with you next week with your paper work to sign. When Rhonda returns, they tell her they couldn’t get the loan. Now, Rhonda of course has already fallen in love with the car and, even if she didn’t, she really needs this car to get to work. The dealer tells her he has found someone who can give her a loan but at a higher price. Truth is, the dealer always knew this but lead Rhonda on to get her hooked. Desperate, she says “fine” and signs the papers. The fees for the car loan total $3000 and the interest rate is 21%. Payments for this old, used car come to $600/month. Rhonda has a feeling she won’t be able to make those payments but she believes she doesn’t have a choice so she vows to do what she has to do to make it work.
Several of months go by and Rhoda has had a lot of trouble making those payments. She has been late every month and now she has missed two payments. The dealer is threatening to repo her car. Reluctantly, Rhonda decides to let them come and get the car because she just won’t be able to catch up and continue to make those payments. The dealer resells the car for $4000 and now Rhonda still owes $4000 (the difference between what she borrowed and what they sold the car for). She can’t make those payments either (and doesn’t want to for a car she no longer owns) and she can’t file bankruptcy to discharge the debt so she tries to avoid the calls and threatening letters but the car lender wants to get aid. Ultimately, the car dealer files a lawsuit to get paid. Rhonda can’t afford a lawyer to help her and a default judgment is entered against her for not only the $4000 she owes but another $3000 for attorney fees. The car lender garnishes Rhonda’s wages at 10% of her gross pay every pay check until it gets paid. A sorry story indeed.
Auto Lenders Resort To Technology to Repo Your Car And Get Paid.
Auto loan lenders are now beginning to use in-car GPS systems to disable cars if payments are not made on time along with audible alarm systems warning the driver that payments are due soon, are due today, are past due and ultimately that the car will be disabled for non-payment.
Upon taking possession of her new car, one of my clients, Alyssa, told me that she was advised her car was equipped with an alarm which within three days of her payment being due would remind her. Then as the due date approached and payment had not been received, further alarms would remind her that payment was due and not received. Finally on the day the payment was due and for three days thereafter, the alarm would warn her that the car would be disabled if payment was not received by the third day.
Once payment was not received, the car was disabled remotely until payment was to be received. While in some ways this may help some make their payments on time, it is no solution for a payment the consumer just can’t pay. This just helps the lender repo the car without having to deal with someone hiding the car and making it hard to repo.
The story often ends just as it did for Rhonda where a default judgment is entered and a consumer finds herself paying for a car through a wage garnishment that he or she no longer owns. And, in the case of someone who just filed bankruptcy to clean up their credit and get a fresh start, all of the effort was now wasted because once again the credit is ruined. This just make it tougher and tougher for these people to get loans that do not have predatory terms.
Recently the New York Times wrote:
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