Sub-Prime Auto Loans: Set Up for Failure

The need for transportation to get to work, and other important appointments can make a car a necessity. Some lenders exploit that need – approving borrowers who can't afford their payments. They set their borrowers up for failure, late fees, and penalties.

Sub-Prime Auto Loan Tactics

Several years ago, sub-prime mortgages were big news as the bubble burst. But that's not to say lenders learned their lesson. Instead, they changed their focus to auto loans.

The tactics are the same. Car dealerships inflate prices far above market value. Then they add on up-charges like warranties and charge exceptionally high interest rates. When the buyer falls behind, the lender tacks on penalties and late fees that drive the cost up even more. Then they turn the accounts over to collections agencies which harass the buyer to get them to pay.

A Cautionary Tale

Consider The Liblang Law Firm's client, Chris. Chris is a cancer patient who needs a vehicle to get to doctors. She bought a 12 year old Dodge Durango, with an accident and almost 170,000 miles in its history. It was worth $4,750, but the dealership charged her $7,500. The dealer then convinced her to purchase a $2,200 warranty on the vehicle. The dealership offered Chris a loan with an interest rate of almost 24% spread out over 4 years. All together, the cost of the SUV was $14,584, nearly $10,000 over market value.

Just two months after she bought the car, she found out there as a problem with the engine that would cost $5,600 to fix – more than the value of the car. What was worse, the warranty would only cover a small portion of the cost.

That's when she turned to attorney Dani Liblang with the Liblang Law Firm. Dani is a consumer law expert with 30 years experience helping consumers fight back against dealerships who sell them lemons at high prices.

"They’re upside down from day one because of the inflated price," said Liblang. "Secondly they’re being charged just horrendous interest rates."

The sub-prime auto loan is gaining popularity. Auto dealers don't care what happens after the car is sold as long as the bank makes a profit and they get their commission. Nor are they concerned with the quality of their warranties. Some sales associates don't even know what is covered by the products they are selling.

That's why Attorney Dani Liblang encourages consumers to stay away from sub-prime lending. Do your budgeting and know what you can afford to pay before you start shopping. If possible, seek an auto loan from an independent lender, like your bank or credit union. And if you do get caught up in a sub-prime auto loan scheme, contact The Liblang Law Firm, P.C., to help you protect you from the collectors' predatory lending strategies.

Michigan Senate to Vote on Rush No Fault Reform

After less than 24 hours notice, the Michigan Senate Insurance Committee voted on and approved a No-Fault Reform bill that would give more power to insurance companies and take away benefits from injured drivers. The very next day it was approved by the Senate. Find out how the bill could affect your coverage.

Obama Speaks Out In Support of Payday Loan Regulations

Many low-income families rely on payday loans to stretch their money from paycheck to paycheck. But these short-term loans often take advantage of consumers. That's why President Obama and the Consumer Financial Protection Bureau are calling for regulations that balance credit availability and predatory lending protections.

Consumer Protection Bureau Criticizes Arbitration Clauses

If you have a credit card or a mobile phone, you have probably signed an arbitration clause. Find out what that means and why the federal Consumer Protection Bureau is considering restricting them.

What is an Arbitration Clause?

An arbitration clause is a paragraph in a contract requiring any disputes to be taken before a private decision maker, called an Arbitrator, before they can go to court. When it works well, an arbitration clause can be quicker and less expensive than filing a lawsuit. The decision made by the arbitrator is binding – meaning it is final and can only be overturned in very limited situations. This avoids long appeals to higher courts and resolves the conflict faster.

What is the Problem with Arbitration Clauses?

When parties don't have the same negotiating power, an arbitration clause can turn from efficient to unjust. Big industry leaders include these provisions into their boiler-plate contracts knowing that the average consumer will not read them or know what they mean. When a consumer sues the company, its lawyers can get the case dismissed because the consumer didn't go through arbitration first. Since the decision is binding, the consumer can't get a judge to review a ruling favoring the big company, and he or she ends up stuck with a bad result.

Why the Consumer Protection Bureau Cares

Generally, two parties can agree to any financial arrangement in a contract. But when an agreement heavily favors the “big guy” over the “little guy” the federal Consumer Financial Protection Bureau can step in. When it comes to arbitration clauses, bureau director Richard Cordray said:

“Our study found that these arbitration clauses restrict consumer relief in disputes with financial companies by limiting class actions that provide millions of dollars in redress each year.”

Class action lawsuits can be used when many consumers are hurt in the same way by the same company, for example by charging inappropriate termination fees. They let a few representatives protect the rights of the whole class. Because arbitration clauses require each class member to go to arbitration independently, they strip the public of this important consumer protection tool.
That's why the Consumer Protection Bureau is considering limiting the use of arbitration clauses by banks and credit cards. Similar bans already apply to mortgage agreements, for the same reasons.

Big business lawyers know how to take full advantage of every sentence their contracts, including arbitration provisions. If you have a dispute with a service provider, you need to contact an experienced consumer protection attorney like Dani L. Liblang. She and her team at the Liblang Law Firm , P.C., have been representing Michigan's consumers for over 30 years. She can help you go up against the big guys and get your dispute resolved fairly. If you have a consumer protection concern, contact the Liblang Law Firm, P.C., today to see if you have a case.