Tags: subprime | auto | loan | lender

NYT: Booming Subprime Car Loans Come With a Stiff Price Tag

By    |   Thursday, 25 September 2014 11:34 AM

Subprime lenders can now disable the cars of tardy borrowers remotely, lending an air of Big Brother intrusion into the world of auto lending.

Approximately 25 percent of all new auto loans made in 2013 were of the subprime variety, and the dollar volume of them hit $145 billion in the first quarter of 2014, The New York Times reported.

The reason for the growth has been demand by investors for loan-backed securities that pay high returns, a scarce opportunity in this time of Federal Reserve-driven low interest rates.

Editor’s Note:
New Warning - Stocks on Verge of Major Collapse

Along with that growth has come a desire by subprime lenders and debt holders to try to guarantee their risky investments.

Many subprime borrowers now are forced to have their cars equipped with a "starter interrupter" device, which allows lenders to remotely disable the ignition, The Times noted. The lenders also use GPS to track the cars' locations and movements.

An estimated 2 million vehicles have already been equipped with the technology, meaning borrowers must stay current with their payments or their care won't start.

The ability to safeguard their assets has allowed lenders to burrow deeper into the ranks of poor Americans, with interest rates on some of the loans spiking north of 29 percent, according to The Times.

"Some borrowers say their cars were disabled when they were only a few days behind on their payments, leaving them stranded in dangerous neighborhoods. Others said their cars were shut down while idling at stoplights," The Times stated.

"Some described how they could not take their children to school or to doctor's appointments. One woman in Nevada said her car was shut down while she was driving on the freeway."

the fact lenders can track the actual movements of borrowers is seen as intrusive by privacy advocates, The Times noted, and the fact the devices emit beeping warnings as the due date approaches for loan payments is "degrading."

"No middle-class person would ever be hounded for being a day late," said Robert Swearingen, a lawyer with Legal Services of Eastern Missouri. "But for poor people, there is a debt collector right there in the car with them."

Lenders and manufacturers of the technology say borrowers consent to the devices. Otherwise, they say millions of Americans might not qualify for a car loan at all.

The current federal probe into subprime auto loan practices is not slowing down sales of bonds backed by the debt, Bloomberg reported. Lenders are readying approximately $2 billion of securities that are either predominantly backed by subprime loans and leases or include significant portions of the debt.

According to the Financial Times, a proposal by the Consumer Financial Protection Bureau (CFPB) to supervise large nonbank auto lenders is meeting stiff opposition from auto dealers.

The proposal would permit the consumer agency, which currently regulates banks that make auto loans, to supervise nonbank lenders that make, acquire or refinance at least 10,000 loans or leases annually. Auto dealers are one of the few consumer lenders not supervised by the CFPB.

Editor’s Note: New Warning - Stocks on Verge of Major Collapse

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Subprime lenders can now disable the cars of tardy borrowers remotely, lending an air of Big Brother intrusion into the world of auto lending.
subprime, auto, loan, lender
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2014-34-25
Thursday, 25 September 2014 11:34 AM
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