Federal and State Auto Lending Regulation On The Rise

The government appears to be increasingly interested in automotive lending. During late 2013 and much of 2014, groups like the Consumer Financial Protection Bureau fined automotive lenders such as Ally Bank due to their dissatisfaction with what was called “discriminatory lending practices.” That occurred back in late 2013; fast-forward to today, in the fall of 2014 and it appears more government resources are being spent looking into auto lending practices.

According to a New York Times report, State and Federal authorities, including prosecutors from Texas, New York and Alabama are looking into the lending practices of used car dealerships. Specifically, they are targeting subprime auto loans. $20.6 billion in subprime auto loans was generated in Q2 of 2014. Reports from anonymous sources close to the situation say some dealerships are falsifying income and employment information in order to push out more loans. In the NYT report, an example is given of a salesman who changes the income of an older woman living on Social Security to $60,000 in an attempt to get her loan to be approved. This practice while likely very rare, appears to actually be occurring.

From a dealer perspective, Steve Jordan Executive Vice President of NADA said that when it comes to auto lending, “ There is no place for fraud.” Jordan also talked about something that has been missing from the endless array of subprime loan stories: accountability. “There is a responsibility on behalf of the consumer who signs off on the terms and drives off in the car,” Jordan explained. While he admitted fraud is not tolerable, Jordan dug into the fact that consumers have the opportunity to review and sign an automotive loan agreement. Thus, when does the responsibility get passed from consumer to dealer for subprime loans? Did the dealer go to the consumer’s residence and drive them to the dealership and make them sign an agreement? Of course not, but many of the articles on this subject seem to imply dealers are the bad guys whenever a low credit, low income consumer signs on for loan. Where is the sense of responsibility? Whatever happened to ‘buyer beware?’ Is the government’s desire to monitor dealers justified by some of the reported fraud, or are they regulating private business unnecessarily? The answer, as always, is up to you.