Questionable lending drives Texas to nation’s highest auto debt

Media Contacts
Bay Scoggin

Texans owe $6500 per capita; lack of transportation options raise costs

TexPIRG Education Fund

AUSTIN– The amount of money Texans owe on their cars is now at an all-time high  — up 75 percent since the end of 2009 to $6500 per capita, the nation’s highest. 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 TexPIRG Education Fund report.

“Texans 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 Bay Scoggin, TexPIRG Director. “Texans 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 TexPIRG Education Fund and Frontier Group, found that:

  • Texans have the highest car loan debt of any state in the nation, averaging $6,500 per capita  

  • Average annual transportation costs in Texas are, on average, $2,000 more than the national average, which is about $9,000 per year. That includes the cost of car ownership, maintenance, and fuel with an estimated 15,000 miles driven per year

  • Texas has filed the second most auto-related complaints, just under 1000, to the Consumer Financial Protection Bureau.

  • 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:

o   Making loans to people without the ability to repay.

o   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.

Consumers like Todd in Texas complain of all the types of lending the report highlights, “I was told by the agent assisting that they would lower my repossession fees and not charge me for the storage fee,” Todd describes in a complaint to the Consumer Financial Protection Bureau. “Recently, I have been told by another agent, after paying again for my second repossession [fee] to release the vehicle, that those charges are indeed part of my balance and still due.”

Todd now owes three times what the car is worth and is asking for help for relief from a loan that exceeded the allowable cap in Texas.

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 Ed Mierzwinski, senior consumer program director for U.S. PIRG. “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.