DALLAS: A follow-up to our series of articles about “Forced Financing” at certain Texas car dealerships—certainly not all of them—is available.
When demand for cars greatly exceeded supply during the pandemic, the practice took off. Buyers had to buckle up since many vehicle dealers rejected outside financing, putting them in control of the transaction. Certain dealers were reportedly refusing to accept cash for cars, according to complaints from customers.
Rather, those dealers have been advising prospective customers that they have to finance through the dealer’s favored lenders if they want the car. This enables the dealer to receive a commission by raising the interest rate that preferred lenders provide.
Sometimes financing through the dealership is the best choice. If you’re forced to use a dealer’s financing to obtain the car you want and your lender offers a better deal, you might be able to refinance with them. Ask your lender about refinancing with them as soon as you purchase in a situation similar to that. Remember to enquire about the original loan’s interest rate and any possible termination costs.
The Consumer Financial Protection Bureau issued the following warning in one of its articles: “Interest rates through a dealer are generally higher because the rate they offer you is their “purchase rate” plus additional interest to cover their costs in handling your financing.”
Texas state regulators requested complaints in response to our reports on this topic. They succeeded in getting them. Approximately one hundred Texas dealerships were involved in the scheme, according to legal complaints submitted by Texans with the Office of Consumer Credit Commissioner (OCCC).
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Further motivated by our reporting, State Senator Royce West filed a bill outlawing the practice. The legislative clock ran out before the law was finally approved, despite strong bipartisan support, and the endeavor failed.
Updated FTC Guidelines for Auto Dealers
With a 372-page set of new guidelines aimed at improving the car purchasing and selling procedure, the federal government has now become involved.
The Federal Trade Commission informs us that while they are not expressly against “Forced Financing,” they are against some of the items mentioned in some of the Texas complaints filed with the OCC.
Among other things, dealers will not be allowed to advertise a car at a certain price and then inform the customer that the car is either unavailable or not available at that price when they arrive. In addition, vendors must stipulate an asking price that all purchasers must meet (regardless of the mode of payment).
Additionally, it mandates that dealers “[t]ell consumers that optional add-ons—like extended warranties—are not required; and when discussing monthly payments, give information about the total payment.”
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Additionally, “Dealers from charging for any add-on that does not provide a benefit to consumers” is prohibited by the new guidelines. Such extras include things like service contracts for oil changes on electric vehicles, warranty programs that mimic manufacturer warranties, GAP agreements that don’t cover the car or the neighborhood it’s kept in, or other components of the package, and software or audio subscription services on a car that can’t support the software or subscription.
The Federal Trade Commission (FTC) projects that these and other new laws will save consumers over $3.4 billion and 72 million hours of annual car purchasing.
July 30, 2024, is when the new provisions go into force. Also, customers will have the ability to report infractions to the FTC. This is already a frequently complained-about region. According to the FTC, concerns over car sales have prompted “more than 100,000 complaints in each of the past three years.”
