(8/25/2011) Erate Exclusive - It's about time tougher federal regulations are coming down the pike for auto dealer loans and you can give the regulators your two cents worth.
Eight out of 10 car buyers unwittingly accept loans from the auto dealers and many of those loans are packed with the same kind of kickback that is now illegal in the mortgage lending industry, according to the Center For Responsible Lending (CRL).
The culprit is the "dealer reserve," a kickback auto dealers receive for selling customers loans with higher interest rates, even when customers can qualify for a lower interest rate.
Such auto loan padding is a lot like yield spread premiums (YSPs) and other predatory mortgage lending practices that contributed to the economic meltdown. YSPs, commissions mortgage brokers were once paid to steer mortgage borrowers to more expensive home loans, were outlawed earlier this year.
Auto consumers can avoid dealer reserve fees, other unnecessary loan cost run-ups and high interest rates by driving a hard bargain.
CRL says kickbacks, and other lures to get consumers to take on abusive auto dealer loans, have been largely unknown until recently thanks to its work and new Federal Trade Commission (FTC) oversight authority.
The FTC says having access to a motor vehicle is essential for many consumers to fulfill their daily obligations. However, it can be the most expensive purchase ever for some consumers, particularly for those who never buy a home. Because of the cost, most consumers finance the deal and need protection from predatory loans.
CRL says the predatory auto loan problem is particularly acute for military personnel.
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