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Used and Abused by the Used Car Industry: Department of Consumer Affairs and Council Member Espinal Hold Hearing to Shine Light on Consumers Being Scammed Out of Millions
October 18, 2016
NEW YORK, NY—Department of Consumer Affairs (DCA) Commissioner Lorelei Salas and Council Member Rafael L. Espinal, Jr. today hosted a public hearing on predatory lending in the used car industry. From crushingly high interest rates to high-pressure sales tactics, consumers are being scammed out of millions of dollars. This hearing featured testimony from consumers who have been harmed, as well as national experts on predatory lending, who together demonstrated the scope of the problem, which will inform possible solutions at the local level. The hearing was hosted in Long Island City, where there is the largest concentration of licensed used car dealerships.
“For many families, especially those with low incomes, a car is one of the biggest purchases they make and if they are looking to a subprime loan, it’s because they are already struggling financially,” said DCA Commissioner Lorelei Salas. “DCA wants to make sure that New Yorkers can purchase used vehicles with confidence, knowing that the car they buy and the financing they agree to are free of any hidden problems and won’t to leave them with a loan they can’t afford. We look forward to working with Council Member Espinal to identify potential legislative solutions to protect New Yorkers.”
“We have all heard horror stories about consumers going into a used car dealership and encountering deceptive and unfair practices, including aggressive salesmanship, seeing the price tag of a car go higher and higher during negotiations, or walking away paying 24 percent interest on financing” said NYC Council Member Rafael Espinal, Chair of the Council’s Committee on Consumer Affairs. “This behavior is unacceptable as it drives individuals further into debt, especially low-income and working-class New Yorker’s who are most at risk and have most to lose. That is why I am proud to partner with the DCA under the leadership of Commissioner Salas, to hear directly from New Yorkers on their experiences with these deceitful predatory lending practices. I am pleased by the insightful conversation we had today and look forward to exploring future solutions.”
“A New Yorker could have bad credit, no credit or hardly any income and still get a car loan,” said State Senator Jeff Klein. “Let’s make no mistake, this is the subprime mortgage crisis reloaded. Lenders think that they could hoodwink us into believing that their bad behavior has stopped, but they’ve just shifted gears. Now lenders see that predatory subprime auto loans could be their next payday, but the Independent Democratic Conference has been watching. This year our legislation to increase the size of the surety bond a used dealership must hold to protect consumers was signed into law and we will continue to combat predatory subprime auto lending at the state level. I thank the Department of Consumer Affairs for continuing to work on this important issue.”
“I was so excited to buy my Nissan Maxima—it was the exact car I wanted and the first time I was buying a car from a dealership,” said Samuel Kissoon from Ozone Park, Queens. “But the dealership took advantage of me and rushed me into signing for a loan with an interest rate of almost 25 percent. I couldn’t afford that! I’m thankful that Consumer Affairs helped me refinance my contract and I hope others can learn from my experience and that it can help to change the way these dealerships take advantage of consumers like me.”
“Like so many New Yorkers, I rely on my car to get to and from work,” said Rhoda Branche from Coney Island, Brooklyn. “After Superstorm Sandy ruined my car, I needed a new car fast so I walked into a dealership looking for help. The staff took advantage of my desperation and locked me into a loan that had nearly a 24 percent interest rate without even explaining the terms of my contract. I tell my friends and family about my experience and warn them of the traps dealerships use but I know more needs to be done and that’s why I am happy to share my story.”
“Around the country, used car buyers face lenders who profit not from the buyer’s success—by being able to pay off the car loan the first time—but from their failure,” said Joe Valenti, Director of Consumer Finance at the Center for American Progress. “From high-cost loans that borrowers can’t afford to aggressive repossessions that leave them high and dry, consumers deserve better outcomes for the vehicles they rely on.”
“Predatory loans have a devastating impact on New Yorkers who are forced to rely on deceptive sources of credit to meet basic needs, such as transportation. NYLAG’s consumer protection attorneys often encounter clients directly impacted by deceptive auto lending practices due to overzealous and under-regulated lending,” said Shanna Tallarico, Supervising Attorney for Consumer Protection at New York Legal Assistance Group. “For example, consumers are defrauded by dealers into purchasing cars that are more expensive than what was initially represented either based on a misrepresentation as to the cash value of the car or the interest rate or both. Consumers are provided blank contracts to sign; dealers misrepresent the necessity of add-on products; vehicles with serious mechanical problems are sold to consumers; interest rates are marked up; monthly payments are highlighted and overall cost of the loan is downplayed or not disclosed at all. These actions are all too common and are done at the expense of New Yorkers and can wreak financial havoc on many folks who are already living paycheck-to-paycheck.”
“Lack of access to affordable financial services and products are some of the challenges faced on a daily basis by low income New Yorkers, and the used car industry is a clear example of the nefarious consequences that the latter have on them,” Rafael Monge-Portaro, President of Neighborhood Trust Federal Credit Union. “High interest rates charged by used car businesses serving subprime customers are only the tip of an iceberg of abusive and intimidating practices. On this front we believe that much can be achieved through a collaborative effort by the City and Community Development Credit Unions. We are confident that through effective financial education and outreach we can break the persistent asymmetry of information which only helps to nurture wrong business practices.”
“The rapidly growing predatory car lending industry targets low-income families, further widening the wealth gap between socioeconomic classes and creating economic burden,” said Natalia Joaquin, Senior Financial Counselor, Neighborhood Trust.
Although many aspects of financing, such as the way loans are structured or how high interest rates can be, are regulated at state and federal levels, New York City’s used car licensing law gives DCA oversight of used car dealers and the way in which dealers advertise and sell cars. Since 2013, DCA has received nearly 650 consumer complaints about used car financing. DCA’s consumer complaint data corroborates a national trend of used car dealers taking advantage of consumers with below-average credit and limited liquidity in the wake of the Great Recession. While DCA has already investigated and reached settlement agreements with a number of dealerships over the years leading to more than a million dollars in fines and more than $300,000 in restitution, the agency sees this growing consumer issue as needing additional regulation.
A March 2014 Urban Institute study on the impact of automobile access on lower-income housing voucher recipients found that “in almost all metropolitan areas, individuals without reliable access to automobiles can reach far fewer opportunities within a reasonable travel time compared with those who travel by automobile.” The same report, which was based on research conducted in 10 metropolitan areas – five transit-rich ones and five with fewer public transit options – also found that across all of the metropolitan areas “automobile ownership is associated with higher employment status and higher weekly hours worked. Access to a car was also found to be particularly important for low-income women and female-headed households, for whom having car access often meant a higher likelihood of leaving welfare and an increase in income.
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.
MEDIA CONTACT:
Abigail Lootens
Department of Consumer Affairs
(212) 436-0042
press@dca.nyc.gov