The new sub prime loan crisis in the United States has arrived. A July 2014 New York Times article titled, “In a Subprime Bubble for Used Cars, Borrowers Pay Sky-High Rates”, details how many lending companies, such as Wells Fargo and Capital One, are taking advantage of financially-struggling consumers.
Big lending companies target such consumers even if they have extremely low credit, or recently declared themselves bankrupt because the companies know they are desperate.
Borrowers, desperate for loans to pay off car payments, agree to pay loans with interest as high as 25%, which in some cases, essentially doubles a monthly car payment.
Marcelina and Jonathan Mojica are examples of consumers who have been taken advantage of by auto lenders. The couple was denied an initial $10,000 loan request from Wells Fargo, but then received an offer for a $30,000 loan from the company.
The couple took Wells Fargo up on the loan offer, despite super high interest rates, and is now paying close to $600 a month in payments for a used 2011 Hyundai sedan. They describe the decision to accept the loan offer as “the worst decision of their lives”, and currently reside in a homeless shelter in Brooklyn, NY.
The Mojicas are among many that have succumbed to lenders’ questionable at best loan offers. Lenders are offering auto loans to virtually anyone these days, regardless of how poor their financial situation is, and are reaping the profits.
Many consumer lawyers say that big lenders are guilty of increasing borrowers’ income on applications, or even forging their signatures. Such lawyers also claim that when contacting banks about the foulplay, the banks refer lawyers back to the lender, saying it is not their problem.
In other cases, some borrowers are being forced to pay fraudulently created loans, while others who cannot make their payments are having their newly acquired cars repossessed.
Consumers who cannot afford their new loans are digging themselves into an already deep ditch, much like borrowers during the 2008 subprime mortgage loan crisis did.
To make matters worse, the auto loan crisis is also being fueled by many investment companies looking to cash in on profits from high-interest loans.
The Consumer Financial Protection Bureau and the Federal Trade Commission have collaborated to penalize lenders for preying on desperate borrowers, and offering them fraudulent loans, but have only been somewhat successful.
The auto loan crisis will continue to be a hot and important topic within the consumer law industry.