I’ve always tried to give my readers the inside scoop on the auto business.
You might realize that auto dealers were recently excluded from the financial reform law that congress passed. The reason dealers were excluded were that we only facilitate the arrangement of financing between a lender and a customer. Since we sell the loan to lenders that are governed by the new federal agency, regulating dealers would be redundant.
However, there was a lot of discussion about what was called deceptive practices by auto dealers. First, let me explain how we help customers with their financing needs. We have approximately 20 lenders that we are under contract with. This allows us to shop them for a better finance package than what a consumer can arrange at their local bank or credit union. We present the options and let the consumer make the choice that best fits them. I’ve told people many many times over the years that they should check with their lender before making a decision to go with what we may offer. In fact, many times a customer has used our proposal to negotiate a better deal with their own lender.
Some of the deceptive practices to watch for are:
Spot delivery or a yo-yo. That’s where the dealer has you sign a set of documents that indicate a better finance rate or other terms and later, sometimes as long as two weeks, call and say that the original finance package didn’t go through. They would then ask you to return and sign new documents. We occasionally have to call a customer back to resign documents but almost always it’s because we got them an even better deal on the finance package.
% Rate advertising. Some dealers advertise a rate that almost no one will qualify for. We would advertise (following the law in Iowa) a rate that most people with reasonably good credit would qualify for.
Unneeded extras. Some dealers sell you on a payment , not the price. In doing so, they generally have added extra items and then try to sell you on them, or worse yet, and we’ve seen examples of this, they put it on the contract and don’t tell the customer. These items are things like an extended warranty, credit insurance (makes the payments if you’re disabled) Gap insurance (pays the difference if your vehicle is totaled and you owe more on it than it’s worth) plus other various items. We believe that extended warranty, gap and credit insurance, and other products we offer can be a valuable option. However, we tell you about them and help you determine what’s best to fit your needs.
We do indeed make some money on the financing package, but after all we spend a considerable amount of time and effort as well as expense in order to get you a better package and have more choices.
In conclusion, deceptive practices are already illegal. We hope that dealers that follow that path get caught and penalized. A good way to explain why dealers were excluded from the financial reform bill is that there didn’t need to be more regulators, they just need to enforce the rules/laws that are already in place.