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NYC Seeks to Remove Dealers from Subprime Auto Finance

April 02, 2015

DCA Commissioner Julie Menin testified before the New York City Council Committee on Consumer Affairs last October that dealer markups should be capped or eliminated in New York.
DCA Commissioner Julie Menin testified before the New York City Council Committee on Consumer Affairs last October that dealer markups should be capped or eliminated in New York.

NEW YORK — The New York City Department of Consumer Affairs (DCA) announced a new car loan initiative this month aimed at providing subprime car buyers with affordable loans from banks and credit unions. The initiative comes six months after the department proposed eliminating dealer markups in the state.

The initiative, announced March 23, stems from concerns that some dealerships are participating in predatory lending practices, “such as selling unwanted add-ons and arranging high-interest subprime loans without informing consumers of critical information,” according to a DCA press release. The department has issued a Request for Expression of Interest (RFEI) inviting banks and credit unions to submit auto loan proposals designed for low-income purchasers that offer a maximum APR below the state’s 16%, among other requirements.

“For many families, especially those with low incomes, a car is one of the biggest purchases that they will make and many borrowers who are sold predatory loans are already struggling financially,” said DCA Commissioner Julie Menin in a release posted on the department’s website. “Our hope is that New York City's financial institutions will step up and fill a void for a fair and safe auto loan product to be offered directly to consumers.”

In October 2014, Menin testified before the New York City Council Committee on Consumer Affairs that a dealer’s ability to mark up the interest rate on a retail installment sales transaction provides those dealers “the incentive to sell consumers unwanted add-ons to increase the amount of financing on a loan and the related markup.” The department, she said, found that customers who sought financial counseling from its Office of Financial Empowerment had an average of $12,000 in auto-related debt, and that 70% of those customers have annual incomes of $36,000 or less.

Menin also cited a July New York Times article on subprime auto lending as evidence that mark ups should be banned or capped in the state. That article claimed that the number of subprime auto loans has risen more than 130% in the five years since the Great Recession, with approximately one in four new auto loans going to borrowers with credit scores at or below 640 — something the news source warned could cause a subprime “bubble” similar to the mortgage crisis.

However, according to data from Experian Automotive, subprime lending in the fourth quarter of 2014 was actually down year over year, while deep subprime lending remained flat. The firm said in its State of the Automotive Finance Market report that deep subprime, subprime and nonprime were up 5.6%, 3.8% and 5.1% in volume during the quarter, respectively.

Data from Experian's State of the Automotive Finance Market report for the fourth quarter of 2014.
Data from Experian's State of the Automotive Finance Market report for the fourth quarter of 2014.

The new initiative comes at a time when both state and federal regulators are targeting subprime auto lending practices. Since July, Capital One, Consumer Portfolio Services, Santander Consumer USA, Ally Financial, GM Financial and Credit Acceptance have all received subpoenas regarding subprime auto finance originations and securitizations. In December, the New York State Department of Financial Services shut down Condor Capital Corporation, a subprime auto lender based in Long Island, for overcharging customers.

“We will not tolerate companies that abuse New Yorkers and other customers — particularly vulnerable subprime borrowers who can least afford it,” said Benjamin M. Lawsky, superintendent of Financial Services, of his department’s actions against Condor Capital. “This case demonstrates that the Dodd-Frank Act provides a powerful new tool for state regulators to pursue wrongdoing and obtain restitution for consumers who were abused. We hope other regulators across the country will consider taking similar actions when warranted.”

Last year, the DCA fielded 283 complaints about used-car dealers and secured more than $900,000 in restitution for harmed consumers. The department currently licenses 869 used-car dealerships.

The DCA did not respond to requests for comment.


  1. 1. Tony [ April 02, 2015 @ 12:44PM ]

    I made a change to a flight that originally cost me $500 and I was charged a $200 change fee. From my calculation that is almost a 500% interest rate! I guess Delta Airlines pays more for a lobbyist than sub prime lenders.

  2. 2. Jim [ April 02, 2015 @ 01:00PM ]

    I think if the Department of Consumer Affairs studied the wake of defaulted loans and jilted creditors that wash up on the beach of "no pay", they'd find that the rates some people pay is on par with the risk that some people have created "for themselves." The rate may look bad but the mountain of debt some people have been allowed to walk away from...pales in comparison. I think the DCA should look to the basis for these rates and they'll probably find that most people pay "the rate they've earned." Just sayin'...

  3. 3. Dan [ April 02, 2015 @ 05:05PM ]

    Sub-prime lenders are around for a reason. The banks and credit unions are not able to take the risk that is associated with sub-prime lending. There are people that had something happen in their life and got behind on their bills. These consumers generally pay around 12% for their loans. The customers that pay north of 20-25% are the credit criminals that have never paid any lender back and probably never will. I fell no sympathy for this type of customer. We all started out with the exact credit and credit score. What we have done with it is strictly on the individuals.

  4. 4. STEVEN JENNINGS [ April 03, 2015 @ 08:57AM ]

    I have never understood the theory of if a customer did not pay as agreed for an average interest rate, for whatever reason. Then what makes anyone think they will pay at a higher rate. There is to much of a disparity between,3.9% for someone with a score in the mid 6's, and the 18 -19 % that someone with a 550-599 would be required to pay. Lower the subprime raqtes to a degree where these people can pay and your risk is now at a level that would be both profitable and you stay off the radar of the CFPB.

  5. 5. Matt [ April 09, 2015 @ 01:44PM ]

    The higher interest rates provide additional revenue which is spent on frequent and a more intense collection process. A high risk account will typically be called one day after a payment is not received. Whereas most banks and credit unions wait far longer - and usually use an automated letter or email. The high risk account is managed with much more intensity and therefor is more costly to the lender. High risk people will default at a much higher rate if allowed to go delinquent for more than 2 weeks. Their income is not sufficient to allow them to recover - they often times live paycheck to paycheck. Miss one payment and they are in serious trouble.
    The higher rates are the only means to generate a business model that works for both the lender AND the consumer. Just my opinion.

  6. 6. Kevin [ April 11, 2015 @ 08:03AM ]

    Many good comments! This intiative will prevent many people with horrible credit from getting transportation in NYC, because the C/U's and banks are not going to want to deal with all these problem accounts, collections and bounced checks,etc... They are not preparded for this business and losses will statrt to stack quickly...
    Again our governemnt officials that are seeking attention for their personal political gain want to interfere with free market business and they have no clue what they are doing!

  7. 7. Amy Nichols [ June 14, 2015 @ 01:48PM ]

    To blame the consumers who for what ever circumstances such as poor financial choices, getting in over their head, or losing a job, etc as the reason to justify predatory lending is ludicrous. In fact the big banks/financial institutions have more than once did exactly what you are blaming the people with bad credit of doing. The difference is these lending institutions were simply slapped on the hand and bailed out. There is nothing wrong by regulating these lenders and their predatory loan rates and practices. It should not be tolerated-believe me they will still lend to high risk individuals -just not at 12-20%. After all it is the high risk individuals who keep them in business. Surely you are not naive enough to think that the loans at 0%-5% are whats keeping them afloat.

  8. 8. Calvert nurse [ August 22, 2016 @ 01:55PM ]

    I am financed through credit acceptance for a 17,800.22 dollar loan,my credit rating at the time was 660. Through curry Chevrolet .

  9. 9. Calvert nurse [ August 22, 2016 @ 01:55PM ]

    At 22.9%

  10. 10. Bruce [ August 25, 2016 @ 07:34AM ]

    Lia Auto Group did this to my wife. She bought a brand new car from them and 2 years later they said you have too many miles on it and should trade in for another car so she did and ended up with a car lone from them that was $12,000 more than the vehicles worth. Now that's what's called subprime Lending.


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