Military Families Often Abused by Predatory Auto Loans

Over 38 million vehicles were financed through an auto dealer last year, many loaded with abusive lending practices that cost Americans billions of dollars. 

Military families are especially vulnerable to predatory car lending practices, which is why the Federal Trade Commission (FTC) is holding a fact-gathering session in San Antonio tomorrow (Tuesday) and Wednesday.

New consumer protection laws enacted by Congress have given the FTC authority to oversee car loans and the agency is gathering information that it will use to write new regulations.

Consumer advocates say the step is long overdue. They have argued for years that auto dealers often steer unsuspecting buyers into overpriced loans, especially when kickbacks from the bank to the dealer are involved.

Car dealers' lobbyists managed to exempt dealers from oversight by the new Consumer Financial Protection Bureau (CFPB) but couldn't block a measure giving the FTC new oversight authority.

The San Antonio sessions will focus on military consumers, financial literacy, and fair lending practices.

Big deal

Buying a car is among the most expensive transactions many consumers will make. Dealership financing can be convenient, but for many, especially those without other options, it opens the door to abuse because it’s complicated, opaque, and often subjective, the National Consumer Law Center reports. 

In the case of interest rate markups, it adds an estimated $25.8 billion to the cost of car loans, raising the chance of default and repossession, especially among subprime borrowers.

A study by the law center found that clusters of predatory lenders, including those offering high-cost auto loans, exist near every U.S. military base. 

Such concentration has spurred a number of stories from military personnel, including one from Staff Sgt. Kevin White and his wife, Linda, of Murietta, CA, who were offered a loan by a dealer near Camp Pendleton at a 23% APR, even though they had been approved for a 6.9% APR loan by their credit union. 0

And then there are the stories from five soldiers from Fort Riley, KS., who were forced to pay extra for add-ons that weren't even on their cars—leather upholstery, high-end stereos, anti-theft systems, upgraded wheels, power sunroofs.