Good news. The Financial Crimes Enforcement Network, part of the U.S. Department of Treasury, reports after a recent study that conscientious automobile dealer staff and finance companies are helping to reduce fraudulent vehicle loans obtained through identity theft. Although suspected cases of identity theft are on the rise since 2004, fraudulent auto loans due to identity theft appear to be declining significantly. The SCE and attributes the significant decline to the new Red Flag Rules of the Fair Credit Reporting Act to deal with identity theft. The study notes that credit card fraud continues to be the biggest problem in terms of identity theft crimes. The full report is available at www.fincen.gov/news_room/nr/html/20101015.html, and it is titled "Identity Theft-Trends, Patterns, and Typologies Reported in Suspicious Activity Reports (SARs) Filed by Depository Institutions."
Wisconsin law provides that any contingent sale of a car or other motor vehicle that the car dealer makes contingent on the consumer getting his or her own financing is rescinded, or undone, by law, if the consumer does not provide evidence to the dealer that he or she has financing within a time established in the purchase contract. See Wis. Admin. Code Trans 139.05(2). Also, the car dealer may not charge any fee or penalty to the consumer in connection with the rescinded deal. See Wis. Admin. Code Trans 139.05(3).
Did you know that if you trade a car in on the purchase of another and you are upside-down on the loan to value of the old car—meaning that you owe more on the trade-in than the trade-in is worth—and the car dealer says he will fix this problem by adding the deficiency on to the sales price of the new purchase, you end up paying more in state sales tax on the deal. This “fix” is not a fix at all and could possible violate your rights as a consumer under state and Federal laws. The additional sales tax you have to pay on the amount of the sales price may be considered a “finance charge” for which certain truth-in-lending disclosures should be made to you during the transaction.
President Barack Obama, on May 12, 2010, spoke out against the Brownback Amendment to the pending legislation to protect consumers in the financial industry. The Brownback Amendment would exempt car dealers from coverage under this consumer friendly law. It is important to car dealers because many of them make money on financing. The law, without the Brownback Amendment, would apply to car financing. According to an article posted on the Automotive News website, President Obama said the amendment “encourages misleading sales tactics that hurt American consumers.” The article also notes that the U.S. Treasury, military families, civil-rights groups, the Independent Community Bankers Association and the Credit Union National Association all weigh in against the exemption for car financing. While the National Automotive Dealers Association is urging all of its 17,000 members to “keep up pressure on their senators” to pass the exemption.
Consider the story of Army Specialist Matthew Garcia, a 25 year old service member that bought a used car, agreeing to pay 19.9% interest on the car loan. He drove off with the car. Later, the dealer called him and said the deal fell through, he had to make other financing arrangements. Specialist Garcia brought the car back and demanded return of his $1,500 down payment. The dealer refused. Specialist Garcia had to fight to get his money back. See more about this story in the article written by Gary Rivlin in the New York Times, May 11, 2010, available online at http://www.nytimes.com/2010/05/12/business/12dealers.html?th&emc=th. This scenario is known in the consumer protection industry as a YoYo deal. Others call it “bait and switch financing.” It is an unfair and in many cases deceptive act or practice designed to force car buyers into higher financing—meaning increased profits for the dealer and/or its financing company. Even where the dealer doesn’t hold the financing itself, it may get a kick back or commission of some sort for arranging the financing. Sometimes the amount the dealer gets depends on the difference between some set percentage and the percentage the dealer ultimately gets the consumer to pay.
Financial regulation of auto loans is a hot topic this May, 2010. With Congress considering adding consumer protections in the financial industry, the auto dealers got the House of Representatives to pass an exemption from these protections for car dealers and auto lenders. The exception for car financing is now before the Senate, in a bill sponsored by Senator Brownback, Republican for Kansas. The exception would carve out car dealers and car lenders for buyers of new and used cars in the financing portion of the deal. Car dealers and lenders are objecting to these consumer protections saying it is unfair to them to be included in the financial protections afforded consumers in other areas of consumer finance. The legislative amendment, called the Brownback Amendment, is before Congress right now, May 2010, for a vote. Consumer protection agencies and even the Pentagon is endorsing the added protections because of the abuses found in car financing. In the May 11, 2010, article by Gary Rivlin in the New York Times, he describes the Pentagon’s position is that these bad deals that many service members get are distractions “that could affect the readiness of the armed forces,” stating that low-income military people “are victimized in large numbers by shady car dealers that set up shop just outside many bases.” The article is available online at http://www.nytimes.com/2010/05/12/business/12dealers.html?th&emc=th.