Auto Loan Defaults Newest Financial Meltdown
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CL Community Team
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Auto Loan Defaults Newest Financial Meltdown
Auto Loan Defaults Newest Financial Meltdown
(CBS 5) Auto payment defaults doubled last year and are expected to get worse. It is another financial meltdown waiting to happen similar to the crisis in the home mortgage industry, according to one consumer group. A CBS 5 ConsumerWatch investigation has found consumers locked into cars they cannot afford.
According to Power Information Network, 1.85 of the 9.6 million customers in 2006 who leased or financed a new car were subprime borrowers or consumers with weak credit.
Vivian Snyder has strong credit and is not classified as subprime, but she is one of many consumers who can't afford the car she leased. Snyder drives a brand new convertible BMW with a MSRP listed at approximately $100,000.
Most consumers can't afford it, and neither can Vivian. That's because the monthly lease payment is $1,300. It eats up half her income which is a $2,500 disability check.
Yet, she got it at BMW of Fremont without showing a drivers license, pay stub, or any proof of income.
How did this happen? Apparently, her income was inflated by nearly 150%.
According to consumer advocate Rosemary Shahan with Consumers for Auto Reliability and Safety the practice is common.
"This is an epidemic of loan applications being falsified. In fact, the model for the meltdown we're seeing in real estate and home mortgage lending was auto lending."
Vivian's story starts like so many others. She went to the dealership which is owned by Autonation, the largest automobile retailer in the country just to look.
She got caught up in the excitement and said she told the salesperson about her $2,500-a month income. But, what ended up on the credit application was the amount she could be making if she was not on disability.
"He (the salesperson) put what he thought I needed to get qualified for the car," according to Vivian.
She admits she signed the lease credit application with her income inflated.
But CBS5 reviewed the lease application handed to Vivian as she left and compared it to a page from the same multi-layer document she retrieved days later.
Vivian's income had been changed once again - from $6,000 to $8,600 without her knowing.
General Manager Larry Long said a salesperson insists he changed the figure while Vivian was present.
"I witnessed that sale. I saw her and congratulated her. She was so thankful. She was so passionate about wanting that car and would have done anything to get that car," Long said.
Larry directs the blame on the finance company - BMW Financial Services.
"It's up to them to look at the credit application and they will see it at face value what the customer puts on paper as to be the truth," Long said.
Martha McKinley, a spokesperson with BMW Financial Services, said, "We have investigated this matter internally, and we are satisfied that BMW Financial Services acted appropriately at all times during the application and credit review process."
Vivian has only a few options. She can plead with the finance company to release her from the lease or have the car repossessed, losing her good credit and a $30,000 down payment which consisted of her entire retirement savings.
"I'm greatly embarrassed," Vivian said. "I should have looked over the contract better."
(CBS 5) Auto payment defaults doubled last year and are expected to get worse. It is another financial meltdown waiting to happen similar to the crisis in the home mortgage industry, according to one consumer group. A CBS 5 ConsumerWatch investigation has found consumers locked into cars they cannot afford.
According to Power Information Network, 1.85 of the 9.6 million customers in 2006 who leased or financed a new car were subprime borrowers or consumers with weak credit.
Vivian Snyder has strong credit and is not classified as subprime, but she is one of many consumers who can't afford the car she leased. Snyder drives a brand new convertible BMW with a MSRP listed at approximately $100,000.
Most consumers can't afford it, and neither can Vivian. That's because the monthly lease payment is $1,300. It eats up half her income which is a $2,500 disability check.
Yet, she got it at BMW of Fremont without showing a drivers license, pay stub, or any proof of income.
How did this happen? Apparently, her income was inflated by nearly 150%.
According to consumer advocate Rosemary Shahan with Consumers for Auto Reliability and Safety the practice is common.
"This is an epidemic of loan applications being falsified. In fact, the model for the meltdown we're seeing in real estate and home mortgage lending was auto lending."
Vivian's story starts like so many others. She went to the dealership which is owned by Autonation, the largest automobile retailer in the country just to look.
She got caught up in the excitement and said she told the salesperson about her $2,500-a month income. But, what ended up on the credit application was the amount she could be making if she was not on disability.
"He (the salesperson) put what he thought I needed to get qualified for the car," according to Vivian.
She admits she signed the lease credit application with her income inflated.
But CBS5 reviewed the lease application handed to Vivian as she left and compared it to a page from the same multi-layer document she retrieved days later.
Vivian's income had been changed once again - from $6,000 to $8,600 without her knowing.
General Manager Larry Long said a salesperson insists he changed the figure while Vivian was present.
"I witnessed that sale. I saw her and congratulated her. She was so thankful. She was so passionate about wanting that car and would have done anything to get that car," Long said.
Larry directs the blame on the finance company - BMW Financial Services.
"It's up to them to look at the credit application and they will see it at face value what the customer puts on paper as to be the truth," Long said.
Martha McKinley, a spokesperson with BMW Financial Services, said, "We have investigated this matter internally, and we are satisfied that BMW Financial Services acted appropriately at all times during the application and credit review process."
Vivian has only a few options. She can plead with the finance company to release her from the lease or have the car repossessed, losing her good credit and a $30,000 down payment which consisted of her entire retirement savings.
"I'm greatly embarrassed," Vivian said. "I should have looked over the contract better."
CL Community Team
Joined: Feb 2007
Posts: 9,375
Likes: 614
From: IL
At precisely what point did this moron think investing her ENTIRE LIFE SAVINGS and 52% of her monthly income into a CAR was a good idea? I don't spend that much on my HOUSE!
Obviously the dealer is shady, but christ on a pony this woman is as dumb as they come. She deserves everything that happens to her.
Obviously the dealer is shady, but christ on a pony this woman is as dumb as they come. She deserves everything that happens to her.
Guest
Posts: n/a
There is a huge thread on VWVortex about it. Seems the lady was on disability and we think she assumed she was going to get a HUGE settlement, so she splurged on a 650 convert. Seems the settlement didn't pan out and now she's broke.
Awful decision by her, the dealer was a typical dealer and you have a mess. Her story is out the norm.
The NORMAL story is lenders got people in all sorts of cars with all sorts of interest rates and now its becoming an issue with people making payments on time.
Awful decision by her, the dealer was a typical dealer and you have a mess. Her story is out the norm.
The NORMAL story is lenders got people in all sorts of cars with all sorts of interest rates and now its becoming an issue with people making payments on time.
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Lexus Champion
Joined: Aug 2006
Posts: 12,560
Likes: 279
From: Illinois
Yikes! There's enough blame to go around in this one.
Just like the housing crisis, in miniature (although you could buy a small house for the price of a 650). Probably a lot of people had a false sense of security thinking they had a lot of home equity, using inflated housing values, and assumed more debt than they can really afford.
Just like the housing crisis, in miniature (although you could buy a small house for the price of a 650). Probably a lot of people had a false sense of security thinking they had a lot of home equity, using inflated housing values, and assumed more debt than they can really afford.
If dealers are willing to sell a car for $0 down with 21% APR, they wouldn't give a crap. They will sell a car, gain profit, and will never have to deal with that customer or that financial institution for that single car again. There are financial institutions that will finance a car for 20+% APR because they know it's a risk, but that's how they profit as well...
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Well its not BAD to sell a car to someone with sub-par or bad credit, things happen, they might be young, you don't know the circumstance.
That is why the Finance managers should look over credit reports or ask questions to see even if the person has below average credit that they are worthy for a 2nd chance. We all have messed up at one time or another.
The problem is finance managers and lenders simply approving EVERYONE. Its not fair to those with bad credit trying to turn things around.
Its messed up b/c the GOOD people with bad credit get hurt by the bad people with bad credit. Lenders now just lump them all together when the economy turns.
That is why the Finance managers should look over credit reports or ask questions to see even if the person has below average credit that they are worthy for a 2nd chance. We all have messed up at one time or another.
The problem is finance managers and lenders simply approving EVERYONE. Its not fair to those with bad credit trying to turn things around.
Its messed up b/c the GOOD people with bad credit get hurt by the bad people with bad credit. Lenders now just lump them all together when the economy turns.
Lexus Fanatic
Joined: Jul 2001
Posts: 6,084
Likes: 0
From: California
No sympathy for Viv. The fradulent application should result in criminal charges, otherwise the system just keeps on going. I would imagine that BMW leasing has a lot of heartburn over suing or filing charges against a customer or a dealer.
Fascinating how people can get on disability and treat it like they just won the lottery. Assuming this is a recent story, ol' Viv is now caught up in a different moment, just not as exciting. Sure hope the bimmer makes her disability easier to deal with.
Fascinating how people can get on disability and treat it like they just won the lottery. Assuming this is a recent story, ol' Viv is now caught up in a different moment, just not as exciting. Sure hope the bimmer makes her disability easier to deal with.
Lead Lap
Joined: May 2007
Posts: 637
Likes: 0
From: TX
VIDEO CLIP here : http://cbs5.com/local/auto.loan.defaults.2.645976.html
People need to get a grip of their finances. This is not the dealers faults. The woman was irresponsible. Using a disability check as if it was the lottery.
People like that, make things bad for everyone
Last edited by Yay-Z; Feb 12, 2008 at 12:33 PM.
CL Community Team
Joined: Apr 2004
Posts: 17,331
Likes: 210
From: Miami, Florida
I see a lot of that down here. A lot of people don't think the economic crisis affecting the U.S. is going to his south of the border, and they go out and buy something they can't afford.
Lexus Test Driver
Joined: Nov 2007
Posts: 5,285
Likes: 43
From: NV
She admits she signed the lease credit application with her income inflated.