Auto loans often present a very difficult obstacle to the unsuspecting customer, especially when taken directly through the dealer.
Car dealerships themselves are often in the business of securitizing a sizeable portion of their customers' auto loans - that is, bundling several loans from purchasers into a security and then selling the security as a whole to a larger corporation. Securitizations enable a lender to remove debt from its books and sell them to larger financial institutions.
Recently, many car purchasers have reported that their interest rates and monthly payment plans changed as soon as their loans became part of a securitized portfolio. Buried in the fine print of the auto loan were terms and conditions that allowed the securitized portfolio's manager to make these adjustments, and precluding the borrower or car purchaser from contesting the change.
Since no direct communication occurs between the customer and the large company that takes over the loan (customers are often unaware that their loans were securitized at all), car salesmen have been accused of fabricating the client's financials in order to close a deal.
NPR recently reported on the case of one man whose monthly payments increased to $425 a month from $250 after his loan was part of a portfolio syndicated to a national bank because the dealership had altered his income information. Living on just an $800 monthly Social Security disbursement, the man could not possibly have qualified for the loan.
During the recent debt boom, it has become clear that car salesmen often know from the start that a purchaser would not ordinarily qualify for a loan. Yet, they specifically target the elderly and other seemingly susceptible customers with overburdensome loans. With some fast talk and urgent sales tactics, many are particularly adroit at getting someone to sign a contract before getting a chance to fully understand it, or even read through all of it.
In the wake of the mortgage market disaster (which happened precisely due to Wall Street's third party involvement in home financing, among other reasons), it's no surprise that President Obama is pushing the creation of the Consumer Financial Protection Agency, which would combine seven current regulation agencies into one. Whether this restructuring would prove more efficient is debatable - debt may always pose certain challenges to consumer protection.
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