For car shoppers with bad credit who want to buy a used car cheap, car dealers that offer “buy here, pay here” plans are often the 1st choice, and sometimes their only option.
But in addition to charging car loan rates that are typically higher than banks and other lenders, many of these dealers are taking advantage of their customers with unscrupulous business practices.
Recently, the federal Consumer Financial Protection Bureau (CFPB) took action against 1 such dealer, Herbies Auto Sales of Greeley, Colorado, fining it for abusive financing schemes, hiding auto finance charges and misleading consumers.
The CFPB said that Herbies unlawfully advertised a misleadingly low 9.99% annual percentage rate (APR), without disclosing that this rate required a warranty, a payment reminder device and that there were other costs, such as finance charges, resulting in a much higher rate in reality.
Violated Truth in Lending Act
The federal watchdog group also said that Herbies violated the Truth in Lending Act by hiding finance charges, advertising a lower APR than consumers received, refusing to negotiate prices with credit customers, while negotiating with those paying cash and luring car shoppers with misleading advertising.
The CFPB has ordered Herbie’s to pay $700,000 in restitution to harmed consumers and has suspended a civil penalty of $100,000 as long as the restitution is paid. Moving forward, Herbies is required to post prices on all the used cars it offers for sale, provide specific finance information in advance and other items to prove that it has stopped deceiving customers during the financing process.
Heading to the dealer in search of a car, first check your credit score for free at myBankrate.com.
“Buying a car is often 1 of the most important purchases a consumer makes, so the experience needs to be fair and aboveboard,” said CFPB Director Richard Cordray. “But concealing finance charges and the real cost of credit, as Herbies did here, is unlawful and unacceptable.”
‘Buy here, pay here’ dealers
So-called “buy here, pay here” dealers are those who sell used cars to consumers with worse-than-average credit and originate the auto loan for the car without selling that loan to a 3rd party. Conventional auto dealers often write car loans at the dealership for their customers, but they do so on behalf of a lender, such as the finance arm of the automaker whose brands they sell as well as banks or credit unions.
If you have lousy credit, don’t assume that you can’t get an auto loan from a conventional lender. Read 5 Steps to a car loan after bad credit.
Tara Baukus Mello writes the cars blog as well as the weekly Driving for Dollars column, providing both practical financial advice for consumers as well as insight into the latest developments in the automotive world. Follow her on Facebook here or on Twitter @SheDrives.