I was perusing a speech given a few days ago by Deputy Secretary of the Treasury Neal Wolin before the Council of Institutional Investors and discovered an odd, off-hand reference to auto finance that deserves attention:
As anyone knows who has ever had to wade through the jungle of mortgage disclosure forms when buying a house, or discovered that the interest rates on their credit card balance went up retroactively, or tried to finance a car only to have the terms changed after purchase, our current approach to consumer financial protection is entirely inadequate.
Financing terms changed after purchase? I personally don’t recall hearing of such a practice. I’ve reached out to the Treasury Department for clarification, but meanwhile it seems as though Geithner & Co. have found a new pet regulatory project related to auto finance.
While I am not for the federal controls the government is trying to establish over States Rights, I must say that what they are referring to in:
‘Financing terms changed after purchase? I personally don’t recall hearing of such a practice.” Happens more than it should in many dealers store, throughout the US.
A person buy’s a car and the paper is held by the dealer until the lender the dealer picked approves the deal. If the terms do not comply with the Lender they can refuse to buy the contract or the dealer must restructure the contract to their terms or seek another lender “Unwind the deal”.
The Customer is called back informed the lender turned them down, unwinds the deal before they can even explain to the purchaser what happen.
After the dealer peals the customer off the ceiling they try to restructure the deal. Not a good thing for the Customer or the dealer. That is one of the reasons we built our software was to better qualify the customer and their car loan package to all the lenders associated with a dealer to find the lenders and risk model most qualified to finance the deal on the front end of the system. From their the dealer and Lenders openly communicate with each other about the deal structure and loan package on the front end of the system before the lender gives their approval.
This is a mess and the dealers know it but they do not need the federal government to change sales tactics. Associations are working on addressing this issue as well as some states. That is the way it should be done. Not massive federal control that will destroy the industry.
Bill