It’s been a truism as long as we’ve had auto financing; some lenders, sadly, are just not on the up and up. One situation, however, involving the Department of Justice illustrates in particular how carefully we as consumers should approach some lenders, especially those that sound too good to be true.
The lenders in question were of a very specific type, the “buy here pay here” used car dealership. You’re likely familiar with these dealerships if you’re near your town’s auto dealer district; they tend to be smaller used car lots that finance their own sales in various ways.
The gist of the lawsuit, brought by the Department of Justice, was that two of these dealerships used discriminatory lending practices towards African-American customers, offering them loans the Department classified as “predatory.” The results had the dealerships settle without admitting any wrongdoing, claiming that it would simply be too expensive to fully prosecute the case.
It’s worth noting for consumers that this is the first case of its kind, where an auto dealership had charges pursued against them by the Civil Rights Division of the DOJ. It’s also worth noting that it’s not going to be the last case, either: Honda’s credit division has alerted investors it believes charges are forthcoming for them. Nor is it the only government agency pursuing predatory lending; the Consumer Financial Protection Bureau recently fined a “buy here pay here” dealership $8 million in its first action against predatory auto lending.
It’s clear that this is just the first steps in what will be an enormous reorganization of how loans are issued to car buyers. But in the meantime, what should you be doing to protect yourself?
The first step is to separate your auto loan from your car purchase. Just because you buy at a dealership doesn’t mean you need to pay at a dealership. In fact, it’s often recommended that you don’t; dealership loans are usually “indirect” since the dealership serves as a middleman between you and the lender. That will come with a few fees and costs, even at the most honest dealership, so you’re better off securing financing first anyway.
Secondly, work with lenders who are trustworthy. The Department of Justice did not just decide to sue a dealership at random; the weight of customer complaints and requests for legal action was what brought them to court. Any lender or dealership that has a poor history of customer service will have plenty of people on the Internet willing to discuss it, although, of course, you should always remember the Internet is anonymous and people will say things at the expense of others just to amuse themselves.
Finally, cast a wide net. Despite what it may feel, especially if your credit isn’t perfect, most lenders work hard to offer you the best possible deal. You can still find wide differences in quotes, however, so get as many as possible before deciding on which deal works for you. The best way to protect yourself as a consumer is to get as many choices as possible, and look closely for the best deal.