RICHMOND (CBS 5) – Several California lawmakers are trying to put the brakes on a questionable kind of used-car financing known as “Buy Here, Pay Here” that critics say takes advantage of immigrants and people with poor credit histories.
The loans, which are currently unregulated, often have interest rates that can top 30%. Jendry Ramos got a “Buy Here, Pay Here” deal last year from Jim Auto Sales in Richmond.
The mother of four, who needed transportation to get to her job in San Francisco, is currently paying 27% interest on her 2003 PT Cruiser, a car she said has been riddled with problems since the day she bought it home from the dealership.
“The car had bald tires,” Ramos told ConsumerWatch. Ramos also said the car jerks when she drives it, and has been leaking fluids all over her driveway.
Under the terms of Buy Here, Pay Here, customers are required to show up at the dealership every month to make their payments – in cash.
“Only cash, to him,” Ramos said.
According to a recent article in the Los Angeles Times, 20% of all used-car purchases in the U.S. are financed with Buy Here, Pay Here deals.
“They are taking advantage of a very vulnerable population,” said State Senator Ted Lieu. Lieu, who is sponsoring a measure to rein in the financing practice, contends dealers are preying on immigrants and people with poor credit ratings who are desperate for transportation. And Lieu said dealers can actually benefit when customers default, because the dealer will keep the down-payment.
“They want you to default so they can take it back and resell it to someone else,” Lieu told ConsumerWatch.
Dealers that offer Buy Here, Pay Here see it differently.
“Buy Here. Pay Here provides transportation to millions of Americans who can’t afford transportation because they can’t get a bank loan,” said Ken Shilson of the National Alliance of Buy Here, Pay Here Dealers.
Senator Lieu’s measure, SB 956, would require Buy Here, Pay Here lenders to be regulated by California’s Department of Corporations as lenders. The bill would also put a cap on the interest rate used-car dealers could charge.
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