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High Priced Auto Loans Force Many Black Consumers Down A Road Of Turmoil

Eric L. Wesson  The Kansas City Call

What do you do when you have “not so good” credit and need an automobile? Chances are you go to a “we finance anyone” car dealership and get the what could be viewed as the “once over.”

While the average car interest rates hover around 6.8 percent, it is not unusual to find interest rates for the credit impaired hovering in the neighborhood of 20 plus percent.

Ms. Zeola Belcher needed transportation, and after three negative experiences with “anyone financed” dealerships she turned to yet another one where she purchased a 1999 Saturn for $5,000 with finance charges amounting $1,500. Ms. Belcher put $500 down on the car which had 121,285 miles on the speedometer.

She paid bi-weekly payments of $140 and was regular with the payments over the past year until she had to take a leave of absence to give birth to her newborn son. Payments then became too difficult to make and the car was repossessed.

“A car is a must for me,” Ms. Belcher said. “I had some medical problems come up while I was on maternity leave which resulted in an extension of the time I was suppose to be out. But now that I am ready to go back to work I can’t because I don’t have a car,” she said.

“I have about $2,500 tied up in the car. They told me that if I wanted the car back I would have to give them $5,400. I purchase the car in 2006 and it would have been paid off in February 2009,” Ms. Belcher said.

“I know that these type of places are a rip off, but I have three other repossessions on my credit report so no one will give me any credit to buy a good used car,” Ms. Belcher said.

Ms. Belcher said, in one instance, her car was repossessed and her child was thrown out of the vehicle by the repo man.“Me and the driver were sitting behind the steering wheel. I was not giving him my truck without seeing some sort of paperwork,” said Ms. Belcher.“Anyone financed” car dealerships are using whatever means necessary to collect car payments.

Mel Farr, owner of the Mel Farr Automotive Group, the largest black owned car dealership in the country, started a trend among car dealers when he placed a box in vehicles that he leased to ensure that drivers paid their payments on time.

The box requires the owners to punch in a new code after they make their payment on Fridays so that the vehicle would start. If they do not pay by Saturday evening the car will not start because the code expires. Under some circumstances owners may receive a 24-hour an emergency code to get to the dealership to make the payment.

Farr has only been sued twice based upon customers complaining that their cars shut off while they were driving.

Carl and Rhonda Burroughs needed another car after Burroughs got a new job working nights in an industrial area in North Kansas City.Shortly after purchasing another car from a finance anyone dealership, Burroughs was laid off his job.

THE CALL met the Burroughs at a car lot while researching this article. Their car had just been repossessed. “No one would finance another car for us because I had not been on the job long enough,” said Burroughs.

“We had tried to do it for a couple of months having only one car but it got to be too much waking the kids up at midnight for my wife to take me to work and then she would have to pick me up on her way to work and she works out in Grandview. We had to have another car,” he said.

The Burroughs signed on the dotted line, “reluctantly” for a 2000 Dodge Neon for $8,900 plus $1,800 in finance charges with bi-weekly payments of $250 per month. Their interest rate was 20.7 percent. The Burroughs were one month behind on the payments when the car was repossessed.
 

They took my partial payment and the salesman called my wife and I into his office to work out a plan to catch up on the payments because I just started getting my unemployment checks. While we were in his office he told us to call and get a ride home because they were taking our car,” said Burroughs.

“The killing part is I was making bigger payments so that we could pay the car off early. I was paying an extra $100 a month and they said that didn’t matter to them and they wanted the $6,750 plus $500 in repossession fees to give us the car back,” he said.
“Our other car is financed through a bank so we tried to go there and get the money from the bank to pay the car off, but they said the car was only worth $2,000 and they would only give us $1,700,” said Mrs. Burroughs.
The Burroughs and Ms. Belcher are just two examples of an out of control trend taking place in this country for millions of Americans, with not so good credit and the need for transportation.
Blacks have been charged higher auto loan rates than other auto buyers, federal research says.
But the gap in loan rates could narrow, and possibly disappear, as the result of recently concluded lawsuits.
Blacks in general pay a typical auto loan rate of 7 percent for new cars, compared with a rate of 5 percent for whites in 2004, according to a consumer organization’s analysis of the Federal Reserve Survey of Consumer Finances. That was the most recent survey available.
Blacks are more likely than other auto buyers in general to have auto loan rates higher than 15 percent for used cars. For used car loans, 27 percent of blacks who buy cars were charged interest rates of 15 percent or more. Blacks were three times as likely as whites -- 27 percent to 9 percent -- to have auto loan rates at least that high.
THE CALL spoke with one manager of an “anyone financed” company who stated that the dealers come up with rates based upon the buyer’s credit history.
“I own and finance all of the cars on my lot. I don’t depend on banks to underwrite my loans,” said the dealer.
“I start out with my interest rates at 22 percent and work down to a bottom of about 18 percent. I adjust it according to the person’s credit score. The lower the score the higher the interest rate,” the dealer said.
“I tell the customer why they have a risk related rate. They can either take it or leave it. If they don’t pay I lose money,” said the dealer.
Consumer advocacy groups say it is hard to believe that blacks are more likely to have a car repossessed than whites.
“It seems like they size up African American consumers and the car salesmen and finance and interest guys. People think African Americans are more vulnerable to a markup or default on loans than any other group,” said Mrs. Stephaney Beck of the Consumer Watchgroup Inc.
“Some people have stated that it’s hard to believe that there is much difference in creditworthiness between whites and blacks with challenged credit,” she said.
“I would venture to say, in most cases, blacks and whites with the same credit issues going into the same dealership the white, will come out with a better interest rate,” Mrs. Beck stated.
Reports also indicate that legal actions against auto finance firms seeking fair treatment for minorities could help solve that problem.
“We had 11 lawsuits. The last of the cases settled last month,” said Stuart Rossman of the National Consumer Law Center.
“We reached a settlement with each of the finance firms. Our cases involved discrimination. We believe the terms of the settlements will eliminate discrimination,” he said.
The first of the lawsuits was filed in 1998 in Nashville, Tenn., against General Motors Acceptance Corporation and was settled in 2004. The last settlement became final in April 2007.
The lawsuit settlements against auto finance companies call for caps on dealer markups, opportunities for blacks and Hispanics to get loans with no markups within the next few years, more information about interest rate terms and consumer education for minorities.
The effects of those legal actions may not be known for some time. However, the National Auto Dealers Association questioned what accounts for the rate differences, but encouraged auto buyers to do their homework before going to buy a car.
“The question that still is unanswered is, why? People should do their homework and shop around for the best possible offer,” Mrs. Beck said.
“There is an organization supported by the auto dealers, Americans Well Informed on Automobile Retailing Economics (AWARE), offers tips to potential car buyers. Black consumers should visit their web site for guidance,” she concluded.
Chris Stinebert, president and chief executive of the American Financial Services Association, said his group is interested in educating consumers. AFSA and its members believe there is no place for discrimination in the vehicle financing system.
Consumer advocates say prospective auto buyers should call their bank or credit union for a rate quote to expect on an auto loan. That could protect them from unfair markups.

The Central Georgian, 2007,  Disclaimer..