6 tips if you must buy a vehicle from a buy-here pay-here dealership
November 3, 2011 by Todd Murray · Leave a Comment
The L.A. Times is currently running an investigative series on so-called Buy-Here Pay-Here auto dealerships. The first installment describes the basic business model used by these businesses and identifies a number of the pitfalls of buying a vehicle from them.
A buy-here pay-here dealership is, as the name suggests, a dealership that finances the car loans itself, rather than using banks or finance companies. They market to people with low-income and bad credit that can’t qualify for conventional financing. In return for agreeing to finance borrowers that don’t have access to mainstream credit, the buy-here pay-here dealers drastically inflate the price of their vehicles, charge very high interest rates, agree to payment arrangements that they know you can’t honor, and aggressively repossess the vehicle once it’s in default, keeping all of the money that the borrower has already paid. And once the vehicle is repossessed, they sell it again. And again. Sometimes the same vehicle is repossessed and sold as many as eight times, creating another revenue stream for these business. The L.A. Times succinctly–and accurately–describes the business model as “sign, drive, default, repossess, and resell. The entire Times piece is a fascinating look into this booming industry and is definitely worth your time.
It would be too easy to advise everyone to steer clear of buy-here pay-here dealerships. After all, they do allow people without access to mainstream credit to buy a vehicle. And let’s face it, most people need a vehicle to get to and from work these days. But buying a car from them is very, very risky. Here are some tips if you’re considering buying a car from a buy-here pay-here lot:
Decide whether you really need to buy from them. Obviously, if you’re considering a buy-here pay-here dealership, you’ve decided that you need a vehicle and have been rejected by conventional lenders. But consider whether you would be better off taking the money that you’ve earmarked for a down payment to the buy-here pay-here dealer and instead using it to buy a used car outright from a private party. This would solve your transportation and financing problem, without taking on all of the risks of buying from a buy-here pay-here dealer.
Do your homework on the purchase price. Because the buy-here pay-here dealer knows that you’re desperate, they often inflate the list price well-over the vehicle’s Kelley Blue Book value. The Times story reports about one particular transaction where the purchase price was inflated to double the KBB price. Do your homework and make sure that you are getting a fair price.
Review the interest rate carefully. The Times story tells the story of one person who thought she purchased a car with an APR of 12%, when it actually was 20.3%. Make sure that the APR is actually what the contract says it is. There are a number of online APR calculators that you can use to verify the dealer’s numbers.
Be sure that you can afford the monthly payment. The Times story reports that 1 in 4 buy-here pay-here customers defaults on their loan. And there is ample evidence that the dealer may deliberately agree to a payment plan that they know you can’t afford because they know that they can just repossess your vehicle and sell it again to someone else. So be conservative in your estimates of how much you can afford each month and be sure to plan for emergencies when doing your budget.
Don’t believe what they tell you about re-financing or trading up. As the Times story details, these are often lies to pressure you into the purchase. If something doesn’t feel right to you, walk away.
Don’t expect them to work with you if you fall behind on payments. Their business model is heavily premised on repossessing cars in default and reselling them. So they aren’t going to be interested in working with you if you fall on hard times. They’re just going to repossess and sell the vehicle again. The Times story reports that many buy-here pay-here dealers outfit their vehicles with GPS devices and remote-controlled ignition blockers to allow for easy repossession. Those that don’t often resort to deceptive or very aggressive repossession tactics. In my experience, some of the most dangerous repossession encounters that I’ve heard about were ordered by buy-here pay-here lenders.
A vicious cycle in the used-car business | Los Angeles Times | October 30, 2011
I often get calls from people whose vehicles are about to be repossessed. The callers sometimes tell me that the repossession agent threatened to have them arrested if they don’t tell him where the vehicle is located and want to know whether they are guilty of a crime by refusing to tell the repo agent where the vehicle is.
Under Minnesota law, it’s a crime if:
(1) You are (a) legally obligated for an auto loan; (b) you know where the vehicle that is secured by the auto loan is located; and (c) with intent to defraud, you refuse to disclose the vehicle’s location to a creditor or repossession agent that is legally entitled to repossess the vehicle.
(2) You–whether you are the borrower or not–conceal the vehicle if you know that the creditor is legally entitled to repossess the vehicle.
The potential penalty, provided by Minnesota Statute section 609.62, is imprisonment for up to three years or a fine of up to $6,000.
So under Minnesota law, it may be a crime to refuse to disclose the location of, or otherwise conceal, a vehicle that your lender is legally entitled to repossess. The key phrase here, though, is “legally entitled to repossess.” You may have defenses to the repossession, which would alleviate the potential criminal penalties because the lender isn’t legally entitled to repossess your vehicle. It’s probably best to be proactive and discuss the situation with an attorney before the repo man is knocking on your door. You should also check out this post for some suggestions that may allow you to keep your vehicle. Again–and I can’t emphasize this enough–don’t wait until the repo man is at your house to consider your options and talk to an attorney.
It’s definitely worth noting that I’ve never been involved in a case where a repossession agent or lender filed criminal charges against someone for refusing to tell them where the vehicle was or for concealing the vehicle. In my experience, repo agents use the threat of arrest to intimidate consumers into turning over the vehicle and rarely, if ever, act on them. But there’s a first time for everything and consumers should tread carefully because of the potential for criminal penalties.
If you’re facing repossession and want to discuss your legal rights with an attorney experienced in vehicle repossession cases, feel free to contact me. I offer 30 minute consultations for $175 and can help you figure out the best course of action for your situation.
I’ve talked to a couple people lately who have told me about some really awful behavior by repossession agents. One person was run off the road by two repo agents working in tandem. Another was forced up against a wall and told that she was going to jail if she didn’t turn her car over. A third was physically dragged out of her car by the repo agent. Needless to say, all of these people were terrified by their experiences. All three of them called the police, only to be told that the police would not get involved.
Fortunately for these people, there is something that they can do. Although Minnesota law allows repossession agents to take your vehicle without a court order, they can’t create a breach of the peace while doing it. Clearly, running someone off the road, slamming someone against a wall and threatening to put them in jail, and dragging someone out of their car all result in a breach of the peace. In addition to liability for a breach-of-the-peace repossession, the repo man may also be liable for other damages as well, depending on the severity of his conduct. And in some federal jurisdictions, a wrongful repossession can also be a violation of the Fair Debt Collection Practices Act (FDCPA). In Minnesota, unfortuntely, federal courts have held that a wrongful repossession may not be a violation of the FDCPA.
You can sue a repo agent that has wrongfully repossessed your vehicle and receive money damages. If you live in Minnesota and have had a bad experience with a repo agent, feel free to contact me for a free case evaluation.
An alarming trend that I’ve noticed lately is police officers getting involved in a self-help repossession. Many times the consumer calls the police after the situation escalates and becomes violent. Occasionally, the repo agent gets the police to accompany him to the scene of the repossession. In my experience, police involvement during a repossession ranges from keeping the peace to actively helping the repo agent take the vehicle. But at what point does this police involvement become illegal?
Before I answer that, here’s a little background: under the U.S. Constitution, the state can’t take your property without notice and an opportunity to be heard. This is called due process. But in states like Minnesota that allow self-help repossession, the creditor can repossess your vehicle without any court involvement whatsoever. Notice is not required and there’s no opportunity for you to be heard before your car is taken. So why isn’t this a violation of the Consitution? Because the Constitution only gives you due process rights when your property is seized by a government, or state, actor. Private repossession companies aren’t state actors. But police officers are. So if a police officer assists in the repossession of your car, it’s potentially a violation of your constitutional rights because a state actor is depriving you of your property without due process.
Of course, it’s not always easy to determine at what point the police go from merely keeping the peace to actively assisting in the repossession. Most of the courts that have looked at this issue have noted that the police may act to diffuse a volatile situation, but may not aid the repossession agents in such a way that the repossession would not have occurred but for their assistance. If the police threaten you with arrest or command you to turn over the vehicle, they’ve probably crossed the line from keeping the peace into active involvement. This would violate your rights to due process and you may be entitled to bring a lawsuit against the police and repossession company for wrongfully repossessing your vehicle.
If you live in Minnesota and had your vehicle repossessed with active involvement from the police, feel free to use the contact form in the upper right corner of this page to contact me for a free case evaluation.
I handle most wrongful repossession cases on a contingency fee arrangement. This means that you don’t have to pay me anything up front–my fees come from the money I recover for you if you win your case or accept a negotiated settlement. And if your case is unsuccessful, you don’t pay me any legal fees. This fee arrangement allows you to stand up for your rights and fight back against a shady debt collector without having to worry about where you’re going to get the money to pay a lawyer.
The National Consumer Law Center just released a report on the dangers of self-help repossessions. In all 50 states, when a lender decides that a borrower has defaulted on the loan, they can unilaterally—and without any court involvement or notice to the borrower—seize the vehicle and sell it. Because self-help repossession doesn’t require the lender to go to court, the borrower—who often can’t afford a lawyer—must then initiate their own court action if they believe the car has been wrongfully taken. Navigating the legal system without a lawyer is a daunting, and often impossible, task for many people. So most wrongful repossessions go unreported and unchallenged.
The report notes that in the last three years there have been 6 deaths reported during self-help repossessions. There have been dozens of injuries and arrests, numerous reports of weapons being used, and two reports of vehicles being seized with young children still in them. The report then details several of the most violent and egregious incidents. And based on my experience handling wrongful repossession cases, many violent incidents go unreported, so these statistics are probably on the low side.
The study points to three main things as the cause of these disturbing statistics: (1) the fact that cars have become an essential part of most people’s lives in the 21st century, which leads many borrowers to resist the repossession; (2) the complete lack of court oversight of the self-help repossession process; and (3) the lack of licensing requirements for repossession companies and agents, often leading to many convicted criminals being employed in the industry.
The report then makes several suggestions to improve the process, and hopefully reduce the number of violent—and even deadly—incidents. I’ve summarized them here, and included my thoughts and comments for each one:
- The consumer should receive notice that a default has occurred and be given a reasonable time period to cure the default. Amazingly, this is not required in most states, including Minnesota.
- A clear rule that if the consumer objects in any way during the repossession, the repo man must stop and the creditor must then seek a court order. This should help defuse most violent situations before they start. While this may occasionally lead to a borrower that is clearly behind on his payments resisting a valid repossession, the lender can still protect its rights by obtaining a court order to repossess the car.
- After repossession, the creditor must give the consumer a reasonable time to redeem the loan before selling the car. Again, this is not required in many states, including Minnesota.
- Strict licensing requirements for repossession companies and agents. To me, this is the biggest no-brainer. And because of the inherent danger in self-help repossession, convicted criminals, particularly those with a history of violence, should not be allowed to work as repossession agents.
- Clear liability by creditors for bad acts by the repo agents they hire. Minnesota case law is pretty clear that a lender is liable for the conduct of the repo agents, but that’s not the case in many states. This requirement would help ensure that lenders only hire reputable repossession companies.
The study also raises the possibility of creating a simplified and streamlined court process that lenders must go through before repossessing a car. The report points to the landlord-tenant eviction process as an example. I think this is a wonderful idea. It would eliminate self-help repossession, give the borrower a chance to dispute the repossession, and add court oversight to ensure that the process is fair to both parties. Lenders will undoubtedly object to this idea. They will probably even resort to their favorite scare tactic, the prospect of increased auto loan costs for all borrowers, to prevent such a process from being implemented. Even if that were true—and that’s certainly debatable—it’s a small price to pay to eliminate the senseless, and largely preventable, violence that can happen during a self-help repossession.
I created a free guide about repossession so that you can learn more about your rights. Feel free to download it and please share it with anyone else that you think could use it. And if you live in Minnesota, and believe that your vehicle has been wrongfully repossessed, consider contacting me for a free case evaluation.
Repo Madness: How Automobile Repossessions Endanger Owners, Agents and the Public (PDF)| National Consumer Law Center | March 2010
(Photo: http://www.flickr.com/photos/davidberkowitz/ / CC BY 2.0)