By Annie Sherman
Lowell Sun
November 4, 2005
BOSTON
-- Car buyers beware: Some dealers may be charging more than they
should be in finance fees and skimming off the top -- practices that
could cost buyers thousands of dollars more through the life of the
loan, advocates warn.
Legislation
aimed at curbing these dealer markups is gaining speed on Beacon Hill,
and advocates say it's about time consumers get protection from
deceitful sales strategies.
“This
is an issue for everyone buying a new car,” said state Sen. Jarrett
Barrios, a Cambridge Democrat who is lead sponsor of the legislation.
“One
in four consumers pays these higher fees, but they don't realize it's
happening,” Barrios said. “How can you shop for a car if you're not
getting an accurate quote?”
The
Joint Committee on Consumer Protection and Professional Licensure heard
testimony on the legislation last week. The bill would limit the
interest rate that car dealers charge customers when financing a car.
Dealers
would have to disclose the credit score used to calculate the interest
rate, as well as the rate the consumer would actually pay and the cost
of arranging the financing. The bill would limit the financing costs to
0.5 percent, or $150, whichever is less.
The
Consumer Federation of America reported last year that at General
Motors Acceptance Corp., the nation's second-largest auto lender, 26
percent of financed transactions received the markup, costing consumers
an extra $421 million between January 1999 and April 2003.
The
CFA also reported that finance markup charges showed signs of racial
profiling. The federation said Hispanic and African-American car buyers
pay more for financing than white customers. In the case of GMAC, more
than half of all African-American car buyers were charged the markup,
compared to 28 percent of whites.
Consumer advocate Eric Bourassa called it discrimination.
“This
is a deceptive lending practice,” he said in an interview outside the
hearing room. “They're in cahoots with the lender and many consumers
are affected.”
He
advised car buyers to know their rights when shopping for a car,
including knowing your credit score and how that score will affect your
interest rate. Bourassa said that if the rate offered by the dealer is
higher than the one offered by a bank, you've probably paid too much.
“Car
dealers say they are just compensating themselves for providing a
service,” Bourassa said, “but really they're ripping off consumers with
an undisclosed back-door fee.”
Car
dealers argue that the bill does not require credit unions to provide
customers with the same disclosures if they were to finance their
vehicles that way.
Joann
Sueltenfuss, executive director of the Massachusetts Independent Auto
Dealers Association, said the bill put auto dealers at a “competitive
disadvantage” with credit unions because only the rate the auto dealers
charged would be capped.
She denied that race or ethnicity were a factor when auto dealers provide financing to customers.
“Money
is lent based on the current credit status of the buyer. If the buyer
has a better credit rating, they will get a better rate,” Sueltenfuss
said.
