By on May 23, 2014

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The Federal Trade Commission is launching an investigation into biweekly payments sold as a product by dealership finance departments on the basis that consumers may not be getting their money’s worth with such payments.

Automotive News reports the National Automobile Dealers Association’s Legal and Regulatory Affairs unit “received a number of questions and comments about biweekly payment F&I products,” and that the FTC recently issued civil investigative demands — requests for documents and/or testimonies — to dealerships regarding how biweekly payments are marketed by the latter’s finance departments. The organization emphasized to its members that finance employees are aware of and are properly trained “to accurately and adequately disclose all fees and costs, and not to overstate any potential benefits.”

Though biweekly payments are meant to bring consumers out of negative equity and the overall loan debt faster than other methods, NADA delivered an example where the fees associated with such payments ultimately hinder any savings on interest. The example given has a consumer save $656.61 on interest for a $27,342.96 loan on a vehicle, but pays $613.50 in total fees over 110 payments, providing little value for the consumer.

NADA concludes by warning dealers that deceptive marketing of savings allegedly offered by biweekly payments would land the dealers and their finance managers under the gun of the FTC.

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21 Comments on “FTC Launches Investigation Into Deceptive Marketing Of Biweekly Payments...”


  • avatar
    bball40dtw

    This happens in the mortgage industry too. Many of the servicing companies charge to set up the service and add monthly fees. Just pay an extra payment every year. If I make one extra payment a year on my 30 year mortgage, it will cut over six years off my mortgage. On an auto loan, it will at least save you a few hundred bucks of interest over the life of the loan.

    • 0 avatar
      arun

      This. Why is it so hard for people to understand why bi-weekly payments work and how to do it themselves?! I am a new immigrant to the USA (and hence generally clueless about how things work here) and I figured it out via that thing called ‘Google’…*sigh*

      For those who don’t know, there are 52 weeks in a year. However @4 weeks a month for 12 months, you account for only 48 weeks worth of payments, if you do monthly payments .i.e.you are missing 4 weeks worth of payments OR a whole month worth of payment every year for the duration of any loan!
      Doing weekly (or bi-weekly payments) simply results in that 1 month’s worth of payment being accounted for as well. No one should pay anyone any fees to do this – simply make another month’s payment at the end of the year (preferably to Principal Only)

      • 0 avatar
        fishiftstick

        Why? Because innumeracy.
        During job interviews I ask applicants for 15% of $100. It’s amazing how many don’t know the answer.
        Multiply the bi-weekly payment by 2.167 to find the equivalent monthly payment. That’s too hard for the innumerate, so they figure bi-weekly = semi-monthly.
        In Canada, advertisers have taken to quoting MPG instead of l/100k. The catch? They’re using Imperial gallons, so you routinely see 50+ mpg claims.

        • 0 avatar
          ect

          Except it’s not a catch. Before metric, Canada (like the rest of the English-speaking world, excluding the US) always used Imperial measure.

        • 0 avatar
          CompWizrd

          It’s worse.. They use NRCan’s figures. NR Can claims 43.5 US Mpg on highway on my car.. It’s .. “possible”, just have to stay at around 105kph,and keep the AC off.. but then they do the imperial stuff,and you’re now in the 52 range.

          My dad wasn’t very impressed when I told him my car was doing about 35 real highway MPG with the a/c on, 40-41 with it off, “My Patriot gets 38!” Yeah Dad, yours is imperial gallons, and at about 90kph… and probably downhill.

    • 0 avatar
      Fred

      I used this to help pay off my mortgage. Two smaller payments timed to be paid with my pay check worked out well. Only difference is my mortgage company didn’t charge me any fees to do it.

      • 0 avatar
        bball40dtw

        If they don’t charge you fees and its timed up with your paycheck, thats a different situation. With some banks you can do it yourself if you are one two week payment ahead. It depends on what they do with unapplied funds. Some throw it at principal, others wait for the rest of the funds for a payment. I still would rather make “The Man” wait to get his money until the 15th and pay extra when I feel like it.

    • 0 avatar
      redav

      bball40dtw, agreed.

      I got an offer from a prior mortgage lender trying to sell a biweekly system to me. They rely on consumer ignorance and try to dazzle/misdirect with tables and huge claimed savings reported in a vacuum. Like extended warranties, they expect you to just go along with it because it’s obviously such a good deal, (“Just look at that number in bold in the table! See how much money you’ll save!”), never mind the fact they wouldn’t push it unless there was some incentive (profit) for them.

      Their downfall is of course doing your own research and verifying the claims. Like you, I had already done my homework and knew how much I could save with biweekly payments, and their number was thousands of dollars different than mine.

      Being the type that can’t stand not knowing what they’re doing, I worked through every scenario I could to recreate their numbers. Eventually I found a note about an unvalued service charge in the fine print of the fine print. Essentially, they were refinancing the loan with all new closing costs, but nowhere in the letter did they claim that. Personally, I question the legality of that letter. Due to the deceptiveness & deficiency of the claims, it is certainly immoral, but they may have been walking the law’s fine line.

      Also as noted, setting up your own accelerated schedule is completely free and simple to do. I’m glad there’s been a move to truth in lending declarations so that it’s clear whether there is a prepayment penalty (personally, I think such should be illegal). Some of the options are:
      – Add an extra monthly payment once a year.
      – Send in a half-payment every two weeks.
      – Reserve a half-payment from each paycheck, then drain the amount each month, i.e., in months with three paychecks, pay an extra half-payment.
      – Increase every monthly payment by 8% (1/12th).

      Of course, there’s nothing special about biweekly schedules–it’s just a form of accelerated payment. Another option that works well is to increase how much you pay each year. If you live in an apartment, you can expect rent to go up each year. Presumably, you will get a raise each year to cover inflation, so use that to increase your payment. For example, if you have a mortgage payment of $800/mo., in the second year, pay $825/mo. Then in the third, pay $850/mo, and so on. It’s similar to the technique of paying off a loan in half the time by doubling the principle reduction each month. (For example: for a $800 mortgage payment–P&I only–in the first month, the principle portion might be $200, so that’s how much you overpay that month. Then the next month, the principle might be $202, so that’s how much you overpay. The amount goes up each month until you pay nearly double for the final payment. Since it doubles your real–i.e., principle–payment, the technique cuts the length of the loan in half.)

      • 0 avatar
        bball40dtw

        I’ve worked at banks that have sent out that kind of offer, or worked with a third party provider that sets it up. Under no circumstances have I ever recommended it. If someone really wanted to make bi-monthly payments, I would recommend setting up a seperate bank account just for mortage payments, and transfer funds into on a biweekly basis. At the end of the year, you can make an extra payment.

  • avatar
    Felix Hoenikker

    This type of scam is a natural result of the dealer’s rapacious pursuit of profits and the low financial literacy of most of the customers.

    • 0 avatar

      It’s not a scam unless information isn’t fully disclosed. It’s not the dealerships job to educate folks on finance. Frankly if everyone used buyers programs and paid cash, every sale I made would be a mini commission. If we don’t make anything on the back end, the front end prices will have to go up. We make our living on profits, not on helping you get a great car at the lowest possible price.

  • avatar
    Pch101

    “even a novice investor like me knows that’s the opposite of what you’re supposed to do, so why not simply wait?”

    GM management and political conservatives were all whining about “Government Motors.”

    Well, it ain’t Government Motors anymore.

  • avatar
    Lorenzo

    I’m most concerned with the line in red. The FTC is supposed to deter and prevent fraud. The example shows that the bi-weekly payment DOES reduce interest and the total amount paid, but not by much, or as much as the customer may think.

    There’s an ethical component, but no fraud. The most that can be charged is misrepresentation, if the savings amount before fees is mentioned and the reduction amount due to fees is not. Is the FTC going to monitor supermarkets that offer an item for $3.49 each, but 3 for $9.99 and decide that the 48 cent saving isn’t enough?

    The bottom line is that it’s not the FTC’s job to make sure customers get their money’s worth. That’s the customers’ job.

    • 0 avatar
      Hillman

      Why shouldn’t the FTC go after misrepresenting data? Also, going after deceptive, unfair, and fraudulent practices is in the FTC is in the mission statement?

      • 0 avatar
        Lorenzo

        As I said, it’s not fraudulent. The POTENTIAL misrepresentation – it depends on what’s said in the dealer’s office vs. what the customer signs, is what they’re looking at.

        What I pointed out was the part in red: they’re investigating “on the basis that consumers may not be getting their money’s worth with such payments.”

        Customers are free to enter into a good deal or a bad deal. There’s no guarantee the consumer must get his money’s worth. The FTC mission statement does NOT cover guaranteeing the customer a good deal, but that’s the stated reason for the FTC’s investigation.

        Unless they have complaints of material misrepresentation, they have no basis to investigate, and are on a fishing expedition. No business, not even car dealers, should have to put up with intrusive government investigations WITHOUT CAUSE.

  • avatar

    Everyone is different I’m sure. At our dealership, most times we use bi-weekly it is at the customers request. I have never once had a single person ask about the interest advantage and have not sold it under that premise. Most folks like it because it makes it easier to budget if you live paycheck to paycheck. For those that are bad with money, bills are easier to pay on payday than the day before.

  • avatar
    mypoint02

    I guess I don’t understand why this is even a product in the first place. I make bi-weekly auto loan payments by dividing the monthly payment in two and scheduling recurring payments on pay day. I don’t even have to think about it. I make an extra payment a year by virtue of there being 26 pay periods. What’s the bank selling you? Why not just keep it a monthly payment and make bi-weekly payments at your discretion? Why would anyone pay for this?

  • avatar
    realdeal

    mypoint – I guess you never eat out since you have the ability to cook your own food?


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