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Archive for January, 2014

U.S. Consumers Say Auto Industry is Essential, Innovative, Growing

The automotive industry had its share of depression during and even after the Great Recession. But many Americans today believe that the industry is very important in U.S. economic growth and believe it will continue to thrive, a nationwide survey shows.

According to a survey conducted by Penn Schoen Berland (PSB), 58 percent of U.S. consumers see the automotive industry to move further ahead. The exact number of respondents also said that the industry is a key driver of innovation.

“What is most surprising in this data is that the automotive industry – which less than five years ago was struggling with declining sales, bankruptcy, government bailouts, and quality issues – is today seen by nearly 6 in 10 Americans as being a driver of innovation,” PSB President Billy Mann said in a statement.

Further, 46 percent agreed that the auto industry is a growth industry or an economic sector that has been experiencing above-average growth rate. No wonder majority of the consumers described the industry as essential, innovative and growing.

Meanwhile, most consumers are very optimistic about other industries, too, like technology, telecommunications and energy. With 75 percent, the technology industry is the top growth industry. Along with energy and telecommunications industries, it is also seen by most consumers as a leader of economic growth for the next ten years.

The survey, conducted early January, had 1,000 U.S. consumers as respondents and was commissioned by Ford Motor Company.




 


 

Booming Auto Lending Helps Banks, but Attracts Scrutiny

Several banks today are able to survive in the last quarter of the previous year despite a declining mortgage demand, thanks to their good-looking auto loan portfolio.

Auto-lending giant JP Morgan Chase, for example, reported that its auto loan origination went up by 16 percent to $6.4 billion in the final leg of 2013. However, the mortgage slowdown and the steep legal penalties both dented its earnings, which declined by 7.3 percent.

Meanwhile, Wells Fargo, the most profitable bank in the U.S. and a major auto lender, had $6.8 billion worth of auto loan origination last year, an expansion of 26 percent. It reported that mortgage banking in the last quarter went down to $1.6 billion, about half of what it reported in the same period in 2012.

Auto loan origination has been growing steadily since 2007, reaching its peak of almost $100 billion in 2013, according to the Federal Reserve Bank of New York.

But since last year, the booming auto lending industry has drawn scrutiny from the federal government and consumer advocates. The Justice Department and the Consumer Financial Protection Bureau are concerned about car dealerships and their tendency to charge minority borrowers hefty auto loan interest rates.

Dealerships work with banks in providing auto loans to car buyers. They mark up the base interest rate as compensation for arranging financing for consumers. The CFPB has oversight on banks like Chase and Wells Fargo, but it does not regulate car dealerships.

The consumer bureau has called on banks to take necessary measures in curbing discriminatory lending practices. It has also reminded indirect lenders that it is their responsibility to ensure that their indirect lending programs comply with fair lending laws.

Ally Bank, one of the country’s major auto loan originators, was investigated by the bureau for its lack of effort in repressing unfair lending practices. Last December, it agreed to pay a total of $98 million of settlement charges.

CFPB chief Richard Cordray has said that the bureau will “take action to address discrimination in any form.”

 


 

How to Buy a Car in 2014

Planning on buying a car this year? Don’t rush. By taking note of the following tips, you can’t go wrong in your car purchase this 2014.

1. Know how much you can afford.

You may have a specific car in mind, but are you sure you can afford it? Finance experts say that your expenses for a car should not be more than 20% of your monthly take-home pay. This amount includes not only syour car loan payments but also operating costs like parking fees, gas allowance, car insurance, and maintenance and repair costs.

subprime auto lenders

2. Choose carefully between new and used.

A lot of car shoppers, especially those buying a car for the first time, get confused when choosing between a new car and a used car. Both have their own sets of advantages and disadvantages. The key is to weigh the pros and cons of each to determine which will benefit you more in the long run.

Over the past year, used cars have been in demand. This caused prices to go up. In that case, you may want to consider getting a new car instead for this year. However, new cars are generally more expensive than used cars. In any case, your decision should largely depend on your budget.

3. Get to know your shortlist.

If you have listed down some car models that you’re considering to buy, take a good look at your list before walking into any dealership. Start researching about each car online. Here’s how:

  • Start by visiting the auto manufacturer’s website to check out the features of the car. Does it have the features you need? Is it available in your area?
  • Take note of the manufacturer’s suggested retail price or MSRP and the invoice price. These pieces of information will be really helpful when you negotiate with a dealer.
  • Keep all the information you will get.

After doing your homework, don’t rush into a dealership yet. There are a few things you would want to do first. Continue reading.

4. Do some math.

If you hate math, this tip may not sound like a good idea to you. But don’t worry. We’re living in the modern age where a simple online program can do it all for you. Websites like Edmunds.com, KBB.com, and Bankrate.com have different kinds of auto loan calculators that can really help you. For example, the calculator in Edmunds.com can assess for you the total amount you’re likely to pay for owning a certain car. This figure is an important factor to consider when deciding whether or not to purchase any of the car in your shortlist.

5. Find the best interest rate.

Notice that we’re not asking you to find the lowest interest rate but the best. Why? Low does not necessarily mean cheap and legitimate. We’ve all learned that (We should!) from last year when new schemes of auto loan scams were revealed. So how do you find the best rate?

  • First of all, apply for an auto loan with the best credit standing you could get. If your credit is damaged, try fixing it first.
  • Make dealership financing your last resort. If you have been reading the news, you’d know that the CFPB has been warning consumers about dealership markups which increase interest rates significantly. Go to banks and credit unions instead.
  • Monitor current auto loan rates. A great source for this is Bankrate.com.
  • Take the cash rebate and use it as part of your down payment.

6. Negotiate shrewdly.

At this point, you should have already arranged financing for yourself, because in that case you wouldn’t have to talk about financing at the dealership. You can focus on the car price which is the first thing to negotiate. You should know at least two things when negotiating for a lower price: the invoice price and the discounts you can claim.

The invoice price, which we have mentioned in tip #3, is the amount the dealership paid the manufacturer for the car. The price you would see at the dealership is most likely marked up. You know, dealers need to earn extra dollars to keep the dealership running. However, this markup could be too much. The purpose of knowing the invoice price, which is available online, is so you know how much room you have in haggling for a lower price.

You should also know about all the discounts available for the car you’re buying. Customer incentives are a form of discount. But automakers also have special offers for certain kinds of buyers like students and military service members. Don’t forget to bring up the discount at the dealership especially if you are so eligible for it.

 


 

23,000 Auto Title Loan Customers to Receive Refund

About 23,000 borrowers of Wisconsin Auto Title Loans, Inc. are expected to receive refund in mid-February this year as part of the $2.75-million settlement for charges of lending malpractice.

Wisconsin Auto Title Loans was alleged to have forced or tricked their consumers into paying a so-called membership fee of $30 to $150, depending on the loan amount, in Continental Car Club, an insurance-like service. By being a member, the borrower can be reimbursed a small amount for emergency services like towing.

The membership was offered as an option. But prosecutors said the loan officers sometimes presented it as mandatory in order to get approved for the loan.

loan

There were also some borrowers who did not know they actually purchased the membership. Apparently, the fee was secretly tacked onto the interest rate, making it so high.

Consumers who took out a loan from Wisconsin Auto Title Loans from January 1, 1999 to December 31, 2010 and confirmed their address by November 15 last year are eligible for the refund which is equivalent to or greater than the loan amount they received from the company. They can receive up to 125 percent of the membership fee they paid plus interest.

But a lot of consumers were infuriated by the exorbitant interest rates charged them and “don’t understand that the settlement only applies to the membership fees,” said litigation director Peter Koneazny of the Legal Aid Society of Milwaukee which represents the borrowers.

The auto title loans, which are typically 30-day long, were made with the borrower’s car undervalued and an annual interest rate of over 300 percent. These are not covered in the settlement. Even with the refund, borrowers will still pay off their loans.

The Wisconsin Department of Justice and the Legal Aid Society of Milwaukee announced the settlement last September, ending the ten-year clash with Wisconsin Auto Title Loans.

 


 

Ally to Pay $98 Million to Settle Charges of Biased Auto Lending

Ally Financial agreed recently to pay a total of $98 million to settle accusations of discriminatory auto lending.

The consent order was announced recently by the Consumer Financial Protection Bureau (CFPB) and the Justice Department (DOJ).

The settlement requires Ally to pay $18 million to the CFPB civil penalty fund and $80 million to minority borrowers who are victims of the auto lending discrimination by the financial institution’s partner car dealers.

ally bank

CFPB director Richard Cordray said that the bureau found that Ally’s efforts in ensuring its compliance with fair lending laws in its indirect auto loans were insufficient. Further, the bureau, in joint effort with the DOJ, found that there are about 235,000 borrowers who were paying an average of $300 more interest than white borrowers with same credit quality.

The extra payments largely came from dealer markups or the percent dealerships add to the loan interest rate as compensation for arranging bank auto loans for buyers. Typically, dealers discretionarily add up to 2.5 percentage points to the base interest rate.

The CFPB contends that such practice leads dealers to charge minority borrowers more, which violates the Equal Credit Opportunities Act.

But Ally, one of the biggest auto lenders in the U.S., did not agree with the consumer protection’s findings even if they agreed to the settlement.

The bank said in a statement, “Ally does not engage in or condone violations of law or discriminatory practices, and based on the company’s analysis of its business, it does not believe that there is measurable discrimination by auto dealers. Regardless, Ally takes the assertions by the CFPB and DOJ very seriously and has agreed to the terms in the orders.”

Aside from paying a sum of $98 million, the settlement requires the bank to “improve its monitoring and compliance systems” by working with the Civil Rights Division and the CFPB while “fairly compensating auto dealers.”

It also requires an independent administrator that can “locate victims and distribute payments of compensation at no cost to borrowers whom the department and the CFPB identify as victims of Ally’s discrimination.”

Ally limits the dealership markup at 2.5 percent, but some advocates are not convinced.

The senior vice president of a consumer advocacy group Center for Responsible Lending, Chris Kukla, said that the dealer markup “is so fraught with fair lending risk that regulators, and frankly the industry, need to abandon it for something else.”

Meanwhile, the National Automobile Dealers Association said in a statement, “NADA fully supports our nation’s fair-lending laws and the commitment of federal agencies to eliminate discrimination in the marketplace.”

It demanded more transparency in CFPB’s findings in discriminatory lending among auto dealers.

Regulators has become stricter in scrutinizing the auto lending industry since it reached the highest level of more than $97 billion in six years.

The consumer bureau started examining Ally Financial’s indirect loan portfolio in September 2013 and analyzed data from April 2011 to March 2012.

 


 

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