Judson E. Crump, PC

A Microcosm of the Congressional Dysfunction Created by Industry Lobbyists – Two Letters to the CFPB

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Last year, the Consumer Financial Protection Bureau decided to finally get around to regulating sketchy car dealers and other non-bank arrangers of consumer financing.

Why?  Because as everyone who deals with auto dealers and their financing partners knows, car dealers very often conceal important facts from the people they deal with.  In this particular case, the CFPB was concerned with the way that dealers will hike up interest rates or other finance charges for borrowers who seem unsophisticated or ignorant, and lie about it.  Here’s a great and common example: you go to a dealership and find a car you like.  You’ve run your credit before, so you believe that you can be approved for about $18,000 of financing at 12% APR.  After hours at the dealership going through paperwork and waiting while they make phone calls and work on computers, they present you with paperwork.  But to your surprise, the price is $19,000 and the APR is 18%.  You say “That seems a bit high!”

“That was all the bank would approve.  We checked with 6 different finance companies, and that was the best deal we could find you.”

Of course, this is a lie.  The truth is that they are trying to direct you to the finance company that provides the best deal for them – the one that will pay them the most for the contract.  And since they pay more for contracts with higher rates relative to the creditworthiness of the buyer, they’re steering you to possibly the worst deal of the 6 companies, and they could have found you a 13% APR.

There is nothing illegal about making a profit.  There is nothing wrong with not telling a buyer how much they paid for the car they’re selling you.  That’s part of the deal.  But there is something wrong with lying to people.  When they say: “This is the best deal we could find” that should be the truth.  If they want to profit, they should do it like the rest of us by buying things at a low value and selling them at a high value.  So the CFPB wants to require them to be more honest.

Naturally, they don’t want to be more honest because that means they’ll be forced to – GASP! – give people fair deals!  So they called their lobbyists in Washington and had them pester our Congressional representatives to try and stop the CFPB from helping out working folks.  What happened?

13 House Democrats signed a letter demanding that the CFPB provide copies of all data used in determining that sketchy car dealers were lying to people about getting kickbacks from finance companies.  Here is their letter:

Even though their tone is nice, they still should be ashamed for obstructing a long-overdue effort to provide working people some relief from dishonest car dealers.
Page 1.  Even though their tone is nice, they still should be ashamed for obstructing a long-overdue effort to provide working people some relief from dishonest car dealers.

Page 2. There are 13 signatures in all.

Page 2. There are 13 signatures in all.

 

 

 

By contrast, here are the letters from the Republicans.

Note how the CFPB's proposal to forbid dealers from concealing the amount of kickbacks they're getting from finance companies is characterized as "restricting consumer choice." This is how your party gets a reputation for hating poor people.
Page 1. Note how the CFPB’s proposal to forbid dealers from concealing the amount of kickbacks they’re getting from finance companies is characterized as “restricting consumer choice.”
There are 35 signatures in all.
Page 2. There are 35 signatures in all.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Obviously, the Republican response was more pro-business and anti-consumer.  No surprise there.  And the way the Republican letter linguistically distorted the facts by using words like “control” and “restricting consumer choice” indicates that the letterw as probably written directly by the auto dealer lobbyists, not the Representatives themselves.  That shows you just how much these 35 particular Congressmen are deeply in the pockets of the industry.

But the Democrat response is just as bad.  Why?  Because it shouldn’t have been written in the first place.  There’s a reason only 6.5% of House Democrats signed on.  Republicans make no secret of favoring businesses over people.  It’s their raison d’etre.

Whose side are they on?

 

How to read Truth in Lending Act disclosures for an Auto Loan. – Alabama Consumer Credit Attorney Judson E Crump

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I’ve written before about how the federal Truth in Lending Act is basically useless in helping people make wise financial decisions.  But don’t take that to mean that I don’t like TILA.  I like it just fine.  It helps my clients fight back against collection lawsuits and mortgage fraud.  It makes me money.  But it is only useful in certain circumstances – particularly, when there is a charge that should have been disclosed as a finance charge but wasn’t.

So how do you know if you have a Truth in Lending violation?  First, I’ll go right out and say there’s a 99.99% chance that the math calculations are correct.  These things are done by computers and personally, I’ve never seen one that was just plain off.  Unlike car dealers and mortgage brokers, computers are inherently honest.  So the false statements you’re looking for are not in the numbers, but in the inputs that generate the numbers.

TILA requires any charge that is ‘incidental to the extension of credit” to be disclosed as a finance charge.  In other words, any penny that you pay that you wouldn’t be paying if you were buying the same thing with cash is a finance charge, and has to be disclosed as such.  So if you’re paying a “doc fee” that is $100 higher than a “doc fee” that was charged to your friend who bought from the same dealership a week ago, then that is a $100 finance charge that they have to add to the disclosure.

So here is what you do.  We’ll use the standard auto loan contract as an example.

First, look at the numbers and make sure they’re right.  They probably are, but it doesn’t hurt to check.

Then, move on to the area where 90% of all TILA violations occur: the “Itemization of the amount financed.”  Here is where the dealer (or lender or mortgage company or whatever) explains how they arrived at their finance charge.

1. The sale price: is it right?  Is it what you agreed on or is it different.

NOTE: IF THE CASH PRICE GOES UP AFTER THEY CHECK YOUR CREDIT, YOU NEED TO CALL A LAWYER.  That’s a dead giveaway for a hidden finance charge and you need to sue them within a year of signing the paperwork.’

2. Down Payment/Trade-In: Is it what you agreed on?

3. Items paid to others on your behalf: Did the money actually go to those people?  If you have negative equity on a previous car loan, is the balance correct?

4. Government & Recording Fees.  Make sure they’re accurate.  Sometimes they’ll overcharge, particularly if you’re out of state.

5. Doc Fees.  Is it more than the limit in your state?  In Alabama, there is no limit on doc fees, and they are a major source of profit for car dealers.  Just what the hell is a doc fee anyway?  It’s basically a dealer profit markup.  It allows them to say “we got the car from the manufacturer for the same price we’re selling it to you!”  But because they are just “cheese” for the dealers, they are easy to abuse.  A smart dealership has a pre-printed doc fee on every single contract.  Because if a doc fee is higher for you when you buy in credit than it is for the average cash buyer, that is a finance charge!  If your doc fee is more than $600, you should check it out.

6.  Service Contracts, GAP Insurance, and Credit Insurance.  These are all ripoffs, by the way.  Especially credit insurance and GAP insurance.  The good thing about them is that they can never be required for the purchase of a vehicle.   If a car salesman tells you that your price will be higher if you don’t get insurance or some other crap, then he is lying and breaking the law.  The contract you sign with them, in fact, is required to say that you’re not required to buy them and that they are completely OPTIONAL.  Don’t let them make you sign it.  If you sign it, you’re stuck with a bad product and you’ve basically given away $2,000 to the dealer.  If you see them included in your loan paperwork, ask them to rewrite the loan paperwork and delete that bullshit.  If they refuse to do so or say they can’t pull out your phone and record the statement so we can sue them later.

So What do you do if you find a Truth in Lending Act violation?  TILA violations entitle you to sue the dealer for actual damages, statutory damages of $1,000, plus attorney’s fees.  The statute of limitations is only 1 year, so you better review your contract as soon as you can to uncover any disclosures.  I cannot speak for any other TILA lawyers, but I charge $50 to review auto loan contracts and credit that amount back to clients who hire me to file lawsuits for TILA violations.  I take these cases on a contingency fee basis, meaning that I pay the costs of litigation and only collect a fee if we win money.  Usually, you end up in arbitration, which is worse if you have a good story of really dishonest and abusive dealing, but it doesn’t mean you automatically lose.

If you do have a case, you need to hire a lawyer because the statute gives you attorney’s fees anyway.  If you’re going pro se, you can’t claim that class of damages from the dealer so they’ll offer you less to settle.  But if you do decide to go it alone, be sure to read the Truth in Lending Act and Reg. Z.  12 CFR 1024.

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