Auto Loan Scams Lead to Congressional Scrutiny

Jennifer Howard thought her loan was a good value. When she was a private in the United States Army, her car dealer tricked her into a loan scam.

Like a lot of buyers, she was applying through the dealer for a bank loan, reports CBS News correspondent Wyatt Andrews. Unknown to her, the dealer was telling her bank her basic Suzuki had extra options like alloy wheels and a moonroof -- which it didn't.

The scam is called "power booking," and it added thousands of dollars to the price of the car which Jennifer had to borrow, with the dealer pocketing the profit.

"I'm like, 'How dare you?'" said Howard. "I already knew the car was inflated. How dare you inflate it more."

Her story and dozens like it have led to one of the biggest showdowns over finance reform. For most consumers, the first big loan of their lives is for a car. The nation's auto dealers want Congress to exempt them from the new Consumer Financial Protection Bureau that would be created to regulate lending. The dealers say they typically help buyers get loans but are not the banks that make the loans.

"Why would you put another level of red tape on people that don't do the auto loans?" asked an auto dealer.

The auto dealers' lobby, which has major clout in Congress, was winning the argument to get this exemption until it ran into another very powerful player: the Pentagon.

Both the Under Secretary of Defense and the Army Secretary say new car loan regulation is critical for the military because young soldiers and sailors are "falling victim to predatory practices and prohibitively expensive products."

The controversy has already led to some intense back-room negotiations here in the Senate leading up to a vote next week. The auto dealers say they still deserve this exemption but would support more protections for the military. Consumer groups respond to that by saying nonsense, that the Senate should be protecting all consumers and telling the auto dealers no.

[shownmichle]

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[anihiel1]

"by jgg000101 May 16, 2010 7:37 PM EDT
cash for clunkers was an auto loan scam. Convincing taxpayers to buy other people's junk required a real sales job."

Ummm dude, part of the cash for clunkers program was the requirement that those clunkers be destroyed. Let me guess, you sold your clunker to a private person and filed for a rebate right? What an idiot. Are you one of those teabaggers that gets all fired up over things they have no knowledge of, and probably have not even read? (I assume you CAN read, right?) And I am sure you are blaming it all on Obama...

[JayAdler1]

I used to sell cars and my wife and I lived in Sheepshead Bay Brooklyn with my wife for five years when we first were married. That part of Brooklyn is Gasoline Alley and residents know their cars. If you can get a pre approved loan at a credit union you have aced the festivities that go on at the dealer. Likewise at your personal bank where they know you and besides, you are not going to get scammed at a bank. Remember you can get an approved loan in advance in a comfortable setting and activate it at the dealer. Also, today you can finalize everything in one day because the dealers are hooked up to the DMV. Go in, drive out. If you leave with out the vehicle that is when buyers get low balled. Remember, in the dealership you are on the defensive with your lust for that new car smell, and the bells and whistles relegating your offense to a ball of jelly. Also read every auto ad in the papers before you go just to get a feel for the market.

[jgg000101]

cash for clunkers was an auto loan scam. Convincing taxpayers to buy other people's junk required a real sales job.

[stormerF3]

Where is the story of the Democrats rejecting the reform of Fannie Mae and Freddie Mac led by Chris Dodd,while giving them another 145 Billion in bailouts?? Now the Tax payers are on the hook for 389 Billion and the Democrats refuse to reform Fannie and Freddie. Talk about a frickin SCAM where is the story about this screwing of the Tax Payers????

[ralphing]

I was in a co-op job program in High School, and we were required to take a class on finances, and also a class on filling out a tax return. I used to do all my buddies tax returns who had part-time jobs at McDonald's.

My relative, got scammed at one of those "Buy here, Pay here" car lots. They charged them double for a crappy car, that requires a payment every two weeks. You miss one payment, they repo the car. They sell the car to another sucker, then put the previous owner in collections for the over-inflated balance, plus high fees because they had to come get it. The vehicle isn't really collateral, because it isn't worth what they sold it for in the first place.

[omega42]

Nobody is stating the obvious, that type of loan is secured with collateral and if Jennifer defaulted the bank or anyone they passed her loan onto would lose money. Does this sound familiar to any of you?

[Dgunner]

My father was a chrysler dealer during the 80s'. I can tell you a honest man in the car business won't last long and he didn't. The only way to stop this practice is to set foundation laws to prevent it make the penalty harsh .The banks should have dealer inspection rights and a representative of the people to protect the consumer from ol' honest john!The best prevention is for the consumer to educate themselves and be protected by laws. Until this is done your children and the entire is under economic attack in the midst of recovering from a recession.

[Fatesrider]

AH-64 Apache versus a Suzuki Samuari...

The Samuari gets better gas mileage, costs less and seats seven.

The Apache can blow it off the road from ten miles away.

Winner: Apache.

'Nough said. Stop screwing our military, auto dealers. They have a hell of a lot more firepower than you do.

[jmgray16]

I was a military officer and routinely saw my sailors getting fleeced. Part of our check in procedure was to tell them if they were going to sign a monetary contract for a lease or a car loan, they had to bring it to me or the Chief to protect them. The biggest problem is that even though these kids have a steady job for anywhere from 3-6 years the credit unions (which are ostensibly to support the military), don't like to lend to 'kids' with no credit history, even though they can sign them up for direct deposit so they don't miss payments. If more credit unions would provide loans to sailors, soldiers and marines, this wouldn't be a problem. They could take their preapproved amount and go to a reputable car dealer or the classifieds rather than going to these predatory dealerships you see near military bases who mark cars up thousands of dollars and get kickbacks from the 'bank' providing the loan.

But this all comes down to the fact that many parents (especially immigrant parents) are not in a position to teach personal finances. A lot of these kids come from blue collar homes and lived in poverty or near poverty before joining the military. And schools are burdened with tons of other requirements, but I have often thought that economics in HS should not focus so much on national level economics, but focus on things like personal budgeting, credit cards and loans to provide real world skills the kids will use.