In Response to Growing Subprime Auto Lending Crisis, Department of Consumer Affairs Announces New "Getting Your Finances in Gear to Buy a Used Car" Guide

March 7, 2017

National Consumer Protection Week: DCA Warns New Yorkers about the Dangers of Used Car Debt Traps

NEW YORK, NY—Department of Consumer Affairs (DCA) Commissioner Lorelei Salas today announced DCA’s new Getting Your Finances in Gear to Buy a Used Car guide, in response to the growing national subprime auto lending crisis. The guide informs New Yorkers of rights they have under the City’s Consumer Protection Law and also provides tips for what to watch for when purchasing a used car. DCA made the announcement at a press conference with federal, state, and city consumer protection agencies, including the U.S. Postal Inspection Service, the Better Business Bureau (BBB) Serving Metropolitan New York, and the Federal Trade Commission (FTC).

DCA’s Getting Your Finances in Gear to Buy a Used Car guide advises consumers that they have a right to buy a car at the advertised price, the right to know all the details of a financing agreement before signing any paperwork, the right to arrange financing with an appropriate entity other than the dealership, and that the City’s laws protect New Yorkers from discrimination when they are seeking access to credit. Additionally, it advises consumers that used car dealers in New York City must be licensed by DCA, post the total selling price for each used car where the car is being offered for sale, post a refund policy where the sales take place, and certify that a car is safe to drive at the time of sale, among complying with other requirements. DCA has received more than 650 complaints from New Yorkers in recent years about problematic practices, ranging from deceptive advertising, to high-pressured sales tactics, to faulty vehicles, and more.

“In New York City, where household budgets can be especially strained, the dangers of predatory lending are immense,” said DCA Commissioner Lorelei Salas. “Purchasing a used car can be one of the largest financial commitments an individual or family can make, and especially in cases where consumers may need to finance their purchase over a number of years, it is important to know one’s rights and options in order to shop for the best deal possible. Too often, DCA has uncovered instances of predatory used car dealer behavior that have mired consumers in unaffordable financing contracts. We believe that consumer education, including our Consumer Bill of Rights Regarding Used Car Dealers and Financing, is one piece of the solution of stamping out predatory lending.”

A combination of DCA’s work in regulating the used car industry and national research about subprime auto lending has demonstrated that consumers need to be armed with as much information as possible about their rights and about the types of questions to ask when they are interested in purchasing a used car. Consumers often face a variety of obstacles when buying a used car: it might not be fit to drive; it could be overvalued; or its’ collision history can be unclear. There might also be outstanding recalls on the car.

In addition, consumers often are not clearly told the terms of any financing agreements they might enter into. Research indicates that much like the subprime mortgage market before it, the subprime auto lending market has been enabling the issuance of risky and predatory loans to buyers who can least afford – perhaps to the tune of several billion dollars nationwide. DCA’s own investigative work on the issue locally has shown that many of the same problems that were once prevalent in mortgage lending – such as falsifying a borrower’s income – are present in auto lending, as well. In the last several years, DCA has assessed approximately $1 million in fines and collected $300,000 in consumer restitution from used car dealers in New York City.

DCA reminds New Yorkers that if they have any questions about a transaction or experience they’ve had with a used car dealer in New York City, that they should contact DCA by calling 311 or visiting nyc.gov/dca.

“As we celebrate National Consumer Protection week, we should all remain committed to ensuring the right of consumers to fair and transparent lending practices,” said New York City Council Speaker Melissa Mark-Viverito. “Predatory secondhand auto dealer lending tactics are destructive and particularly hinder consumers who are most in need of affordable financing contracts. I support Commissioner Salas and the Department of Consumer Affairs in their efforts to prevent New Yorkers from being harmed by these unfair tactics.”

“From credit card scams to the used auto industry, consumers nationwide must protect themselves from theft,” said Council Member Rafael Espinal, Chair of City Council Committee on Consumer Affairs. “Secondhand auto dealers are a particularly egregious set of actors who play with people’s livelihoods and must be reined in. I applaud the Department of Consumer Affairs for actively protecting New Yorkers and looking for ways to empower our communities.”

“NYLAG applauds the Department of Consumer Affairs and Commissioner Salas for taking a positive step towards demystifying the process of financing and purchasing a car from a secondhand auto dealer. Many of our clients have been victimized and find themselves trapped in unaffordable loans that wreak financial havoc on their lives,” said Beth Goldman, President and Attorney-in-Charge of the New York Legal Assistance Group. “We support DCA’s efforts to hold dealers accountable and to help consumers become aware of their rights and better understand their options when financing and purchasing a car.”

“Used auto dealers need to be held accountable when their tactics leave car buyers worse off than before they came in,” said Joe Valenti, Director of Consumer Finance at the Center for American Progress. “All too often, people looking for a dependable ride instead end up being taken for a ride through predatory financing and deceptive practices. It’s time to ensure that financially vulnerable car buyers have the tools and protections they need.”

Below are some key rights that consumers have when buying a used car:

You have the right to buy a car at the price advertised. Car dealers must display prices on their used cars. A used car dealer may not sell you a car at a price that is greater than the price advertised, quoted, or posted on the car.

You have the right to know the details of your financing agreement before you sign anything.

You have the right to written disclosures about important terms of your financing contract. Federal law requires that you get written disclosure of terms such as your annual percentage rate (APR), the amount of money you have agreed to finance, and the total amount you will have to pay to completely satisfy the terms of the financing contract.

You have the right to decline financing or a loan arranged by a used car dealer. You can pay cash or seek financing from another lender.

You have the right to get credit without discrimination. Credit discrimination on the basis of race, color, religion, national origin, sex, marital status, age, or use of public assistance is illegal under federal law.

Used Car Dealers Must:

Hold a Department of Consumer Affairs (DCA) license in order to operate. The dealership must post its DCA license where you can see it. You can call 311 to be transferred to DCA to check a dealership’s license status and complaint history.

Post the total selling price for each used car offered for sale.

Post a Federal Trade Commission (FTC) Buyer’s Guide on each used car offered for sale.

Post a refund policy in the office where sales take place.

Maintain records of sales, purchases, and deposits received.

Certify that each car sold is in safe condition at the time of sale and agree to repair any defects at the time of sale.

Some key questions consumers should ask when thinking about purchasing a car include:

“Have I shopped around enough? Is this the best car and offer that I can get?”
“What is the total amount that I am going to be paying for my car over the life of the loan?”
“Do I understand all the terms of the financing agreement?”
“How much extra am I paying on financing as opposed to buying the car outright?”

The NYC Department of Consumer Affairs (DCA) protects and enhances the daily economic lives of New Yorkers to create thriving communities. DCA licenses more than 81,000 businesses in more than 50 industries and enforces key consumer protection, licensing, and workplace laws that apply to countless more. By supporting businesses through equitable enforcement and access to resources and, by helping to resolve complaints, DCA protects the marketplace from predatory practices and strives to create a culture of compliance. Through its community outreach and the work of its offices of Financial Empowerment and Labor Policy & Standards, DCA empowers consumers and working families by providing the tools and resources they need to be educated consumers and to achieve financial health and work-life balance. DCA also conducts research and advocates for public policy that furthers its work to support New York City’s communities. For more information about DCA and its work, call 311 or visit DCA at nyc.gov/dca or on its social media sites, Twitter, Facebook, Instagram and YouTube.