BOSTON–
A bill aimed at curbing deceptive loan mark-ups by car dealers was heard before the Joint Committee on Consumer
Protection & Professional Licensure. The sponsor of the Car
Buyers’ Bill of Rights is Representative Christopher Fallon (D-Malden), who says
that the real cost of new cars can often be hidden from consumers
because of the misleading practice.
“Car
buyers have to read a lot of small print and they deserve to know up
front what the real costs of their car are,” said Representative Fallon. “Our
effort targets the most misleading and unfair practices used only by a
portion of car dealers.”
In
a hidden practice that the bill seeks to ban known as the “dealer
markup,” car buyers who arrange financing through dealerships often get
percentage points tacked on to their loan that can cost thousands of
dollars above the ordinary financed price of their car. Lenders who are
complicit in this setup kick back most of the markup to the dealer,
while the customer remains unaware. A January 2004 report by Consumer
Federation of America (CFA) estimated the markup impacts as many as 1
in 4 car buyers for whom dealers arrange financing and that these
overcharges cost all consumers at least $1 billion annually.
“This
is a deceptive lending practice,” said Eric Bourassa, MASSPIRG Consumer
Advocate. “Car dealers say they are just compensating themselves for
providing a service, but really they are ripping-off consumers with an
undisclosed back-door fee.”
According
to the CFA report, minority consumers are most affected by the mark-up.
African-Americans and Hispanics pay on average higher markups fees than
their marked-up White counterparts. For example, a report on lending at
the dealer by Honda finance shows that 66.7% of Whites were charged the
markup, as compared to 72.9% of Hispanics and 86.7% of
African-Americans. The average markup for a White Honda customer was a
pricey $666.55, but the average markup paid by Hispanics is $857.63 and
for African-Americans it’s a whopping $1127.69.
In
July 2005, California passed a similar Car Buyers Bill of Rights that limits
the profits dealers can make when they arrange loans. Louisiana is the
only other state with such a law.
