Don’t get tricked into signing up for a high-cost loan when you buy a used car.
Credit Acceptance Corp. misrepresented the cost of credit and turned the car-buying experience into a nightmare for many of its borrowers, the Consumer Financial Protection Bureau and New York Attorney General’s Office charged in a lawsuit.
The borrowers faced unaffordable monthly payments, vehicle repossessions, and debt collection lawsuits.
The agencies alleged the company harmed consumers by:
-
- Hiding the true cost of credit: The cost of credit was far higher than what borrowers are told.
-
- Setting up borrowers to fail: For almost four out of 10 loans, Credit Acceptance predicted that it wouldn’t be able to collect the full amount of the loan. However, it made profits even when borrowers are unable to pay by using aggressive debt collection methods.
-
- Closing its eyes to practices that harmed consumers: The company created financial incentives for dealers to add extra products to loans and then shrugged off whether customers were misled into thinking the add-on products, such as vehicle service contracts, were required.
Auto loans are the third largest category of outstanding consumer debt, after mortgages and student loans.
In recent years, the cost of vehicles has risen substantially, leading to increased borrowing.
Credit Acceptance is an indirect auto lender that provides loans for people with low credit scores.
It does business with a network of more than 12,000 affiliated used-car dealers.
From Nov. 2, 2015 to April 30, 2021, about 1.9 million people obtained used car loans through Credit Acceptance and its affiliated dealers.
So watch out for predatory loan companies that steer people into debt. It can lead to severe consequences, including wage garnishment and an inability to borrow money in the future.
A default on an auto loan can also lead to the borrower losing their car, which can cause job loss, further damaged credit, and financial distress.
