Questionable lending drives Americans to record auto debt

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75 percent auto debt increase in past decade; lack of transportation options a factor

NHPIRG Education Fund

The amount of money Americans owe on their cars is now at an all-time high — up 75 percent since the end of 2009. Americans’ rising indebtedness for cars raises concerns about the financial future of millions of households as lenders extend credit to more and more Americans without the ability to repay, according to a new U.S. PIRG report.

“Americans deserve both protection from predatory and unfair practices in auto lending, and a transportation system that provides more people the freedom to live without owning a car,” said Ed Mierzwinski, U.S. PIRG’s senior director for federal consumer programs and a report co-author.

“Americans shouldn’t have to fight their way through a thicket of tricks and traps at the auto dealer just to get the transportation they need to get to work or school.”

Access to a car is all but required in much of America to unlock opportunities for work, education and play. But the financial cost to households is steep: Transportation is the second-leading expenditure for American households, behind only housing.  

“Driving into Debt: The Hidden Costs of Risky Auto Loans to Consumers and Our Communities,” a report by U.S. PIRG Education Fund and Frontier Group, found that:

•Americans owe more than $1.2 trillion on auto loans, up 75 percent since the end of 2009;

 • More Americans carry auto debt than ever before, with the number of outstanding auto loans up by 39 percent since 2010;

•Auto lenders – especially subprime lenders – have engaged in a variety of predatory, abusive and discriminatory practices that enhance consumers’ vulnerability, including:

  • Making loans to people without the ability to repay.
  • Discriminatory loan markups to African-American and Hispanic borrowers.
  • Pushing expensive “add-ons” such as insurance products, extended warranties and overpriced vehicle options, the cost of which is often added to a consumer’s loan.

Driving into Debt recommends policies to give more Americans the opportunity to avoid auto debt, including improved public transportation, expanded access to carsharing, and an end to land use and economic development policies that separate jobs from people.

“Today’s American transportation system forces almost everyone to own a car, and it’s driving us into debt,” said R.J. Cross of Frontier Group, the report’s co-author. “Residents of cities with more transportation choices — from New York to Seattle — spend less on transportation. They have more options to avoid risky auto debt and all the other expenses that accompany driving. It’s time we extended those transportation choices to more Americans across the country.”

The report also recommends strong consumer protections to ensure that those who do borrow money to buy a car are treated fairly in the marketplace.

“We need a strong Consumer Financial Protection Bureau and help from state Attorneys General and local officials to enforce consumer and fair lending laws against unfair car loan tactics,” concluded Mierzwinski. “Otherwise, consumers and the overall economy will suffer.”

The report also includes a list of tips for consumers to avoid risky auto loans, including seeking pre-approval for an auto loan from a bank or credit union before visiting a dealership and considering the total cost of a vehicle – including interest – alongside monthly payments when making the decision to buy.