By on December 28, 2017

keys car sale

It was halfway down an email that was anonymously forwarded to me a few weeks ago, buried between torpid paragraphs grown thick and encrusted with the deliberately Byzantine language of Wall Street analysis. And it said something like this:

In Detroit, Michigan thus far in 2017, nearly one in eight of all available civil lawsuits filed in the city involve (this firm) suing borrowers. Overall, 72% of these lawsuits resulted in the company garnishing the wages or tax refunds of borrowers. In essence, the company is a new kind of hybrid: a debt collector that originates its own loans — a combination that has proved extraordinarily profitable for investors as the business of lending to troubled borrowers has surged since the financial crisis.

A debt collector that originates its own loans, generating more than 10 percent of all civil lawsuits in Detroit. Something wicked this way comes.

Long-time TTAC readers may recall that I worked for Ford Motor Credit in the early Nineties, doing credit approvals and working with the collection department to find collateral. It was a very junior position — I’m not going to pull any of that “youngest manager in the company history” BS — and it didn’t pay very well. But it did give me the chance to work for, and learn from, some remarkably level-headed people.

At FMCC, we made every effort to ensure the success of our loans. That meant asking questions and offering solutions that went remarkably, perhaps uncomfortably, far into the realm of loco parentis. I can still remember one of my bosses, a perpetually frustrated African-American woman suffering from painful carpal-tunnel and joint pain issues, saying to me, “Jack, you and I both know that kid doesn’t need an F-250 to go to his job. Offer him approval on a Ranger… tell him he can have a 4×4 if he doesn’t ladle on the options.” Other times, she’d direct me to call the applicant’s spouse and find out whether or not she was “really on board” with a new Mustang GT.

I had another boss, a mousy-looking and deeply reserved early-thirties woman named Tina who was a dead ringer for actress Kristen Wiig. She had an uncanny, almost psychic, nose for straw purchasers. She could look at an application for 10 seconds and tell me who was really going to be driving that new Bronco or Tempo. I was very much in love with her, more so after she had an argument with our branch manager and showed her displeasure by getting herself a new Chrysler LeBaron in flagrant and flamboyant violation of the branch’s unspoken policy. In the afternoons I would move my chair to “avoid the sun glare” but really my purpose was to watch her sitting at her terminal, quietly chewing her lip and looking to the ceiling in quiet desperation. She did not like her job.

Bright colors and lowered prices try to attract customers to a California used car lot, Image: Bike Tourist/Bigstock.com

We who toiled in the credit-approval department were under constant pressure to approve the worst sort of garbage loans available. The dealers would regularly threaten us with the withdrawal of their floorplan business if we didn’t step up our approval ratings. At some point in 1992, the biggest dealer in our market made good on his threat, going to GE Capital for floorplan after a remarkable meeting in which he showed up apparently coked to the gills in a new Cobra R and screamed at our management loudly enough to be heard through two layers of sound-insulating glass. The following week, that dealer put in a remarkably bad application for a conversion-van buyer. There was about $17,000 worth of profit baked into the deal. On the top of the fax, the F&I manager had written “PLEASE!” with a smiley-face next to it. Tina dropped the fax roll into my lap on her way out to lunch, the keys to the LeBaron jingling in her hand.

“Wait 45 minutes,” she said, “then call him back and tell him Tina says to run it by GE Capital.” Her brown skirt crackled with electricity and her legs were short but muscular beneath it. I went into the mailroom and did pushups until I felt I had control over my impulses.

Sometimes our best efforts went for naught and an account went to collections. Our branch employed six collectors and one supervisor, a hard-faced but height-challenged fellow who spent his days walking by desks and barking orders.

“Oh no he doesn’t. We’re not third in line behind the landlord and Columbia Gas. It’s summertime. He doesn’t need hot water.”

“Payments don’t end when the warranty ends. Not for shitbirds who run a Festiva all the way to sixty months.”

“Well, tell Grandma that if she didn’t want to make a payment she shouldn’t have signed the second line on the lease.”

Each and every single time the collection department repossessed a car, there had to be a meeting between the original approver, the head of collections, and the branch manager. I remember Tina coming out of one meeting in tears, followed by the grim-faced collection manager who had been berating her about the approval. I popped up out of my chair and my face must have been easy to read because the branch manager quick-stepped between us. “Everybody,” he reassured me, “is doing their best here, it’s nothing personal.”

The next day, the collection manager stopped by to thank us both for ensuring he had a solid co-signer on a particularly bad loan. I daydreamed about breaking his jaw then taking Tina to lunch at my father’s club, where she would agree to marry me despite the fact that she was already married and a decade-plus senior to me. I mention these things so my younger readers can understand: not even birds are born knowing how to fly.

I also want to point out something that should be obvious: Ford Credit, like every other ethical firm of which I have ever been aware, never knowingly put people in a bad situation with a loan. We didn’t want to collect on them. We wanted them to enjoy their cars and then to trade them in for another Ford. Our purpose was to help sell Fords and to make money. It was a good purpose and we kept Ford afloat a few times when the business of financing cars was better than the business of selling them. I have never felt a moment’s shame for anything I did at FMCC. We were decent and aboveboard in all our operations. It was business the way my father told me business should be done.

As reluctant as we were to approve bad debt, and as reluctant as we were to collect aggressively on it, we were even more reluctant to use the courts against our customers. Our collectors liked to handle things by what Robert Ringer called “the law of the jungle.” We’d do whatever we could to get you to pay for your car and if you couldn’t pay for it, we’d repossess it. But we didn’t use the courts to do our dirty work for us unless there was no other way. More than once I saw our collection manager repossess a car, sell it at auction, then effectively forgive a balance because he didn’t want to put the borrower through court. “No way for him to get there anyhow, unless you and Tina pull your usual tricks and decide to lease him a Mark VIII,” he’d laugh.

Perhaps that makes it easier for the reader to understand why I am personally disgusted by Credit Acceptance Corp (NASDAQ:CACC) and their tactics. When nearly one-eighth of the Detroit civil court docket is taken up by one company, then I can’t see that as anything other than a weaponized use of the courts against people who shouldn’t have their loans in the first place. At Ford Credit, we considered a ratio of one repossession to every hundred approvals to be cause for concern; what does it say if you’re running at dozens of times that level? There’s nothing accidental about a rate like that.

You can read the document that I was sent right here. When it arrived in my inbox, it was accompanied by some laconic in-house notes written by an employee of a major firm, noting that CACC was outperforming predictions so far this year. A new kind of hybrid, indeed. You make loans knowing they’ll go bad. Then you collect on your own debt, using the biggest fees and penalties you can muster.

I’m not saying that CACC does anything illegal. To the contrary, they appear to be very well-acquainted with the law and its applications. Nor am I prepared to say that what they do should be illegal. I do, however, think that this “hybrid” process represents a definite choice of profit over ethics. We all know that it’s wrong to deliberately put someone else in over their head. It’s wrong on a personal level, it’s wrong on a corporate level. Regardless of profitability.

I’ve worked in “subprime banking” myself and I can recite all the boilerplate about how high-interest-rate, high-risk lending is actually beneficial to a community and to its members. The question becomes: At what point can an honest man stop mouthing those excuses? I’d suggest to you, dear reader, that the point is well south of becoming a civil court’s most frequent flier.

[Image: Bike Tourist/Bigstock.com]

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137 Comments on ““A New Kind Of Hybrid”: The Terrifying New Way Disadvantaged People Are Buying Cars...”


  • avatar

    I luckily do not do a lot of subprime anymore, but I’ve always hated Credit Acceptance.

    Credit Acceptance is notoriously bad, even to the dealer. They used to charge to send you to orientation classes in Southfield and entice you with portfolio participation cash-outs which almost never materialize because if you’re hanging paper with CAC, those people are very unlikely to have their loans mature.

    CAC tacks on a non-modifiable $699 ‘vig’ onto every deal on top of your own dealer processing/title/etc fees. CAC also advances you nearly nothing on anything that doesn’t align with their program. One example recently was an approval on a ‘1’ (out of 10) customer where I would have to sell a ’14 Jetta 1.8T for $13,995 with $2500 down to net me $6800 in a dealer check. Uh. No thanks. You have to buy CAC-type cars to work on the CAC program and be comfortable feeding the customer CAC’s line of B.S. about rebuilding their credit.

    CAC also doesn’t finance cars with structural/frame damage. Funny, because about 1/3 of their repos that roll through the block have structural announced. Probably because they KNOW they’re going to snatch these cars back and want to cushion whatever hit they take.

    You have to send CAC at least one deal per year to stay active and that’s about what I do. I keep them around for the one idiot where the stars align around customer and car and the deal makes some sort of sense, which occurs so rarely its literally about once a year.

    I’ve had many cases where I simply tell the customer, “Can you give me another $500 in two weeks with a check to hold?” and run the deal through Westlake or someone comparable where they’re not welded to an almost unpayable loan for 48 months. And in the majority of cases, if they can’t get approved at somewhere other than CAC, they probably shouldn’t be financing a car in the first place…

    • 0 avatar
      PrincipalDan

      Good to know there are dealers willing to say: “How about – NO” When it comes to dark underbellies of their business.

      FYI that 1989 Century in your inventory is giving me A-body flashbacks. When I met my first wife she was driving a Olds Cutlass Ciera in that same color combo.

  • avatar
    4drSedan

    Wow, I just now realized how happy I am that I never have to visit that world.

  • avatar
    theBrandler

    I completely agree that this is unethical…but on the other hand, we mandate everyone go to school and learn maths for a damn good reason. It’s not the least bit hard to figure out if you can afford a specific payment.

    I’ve done this with my house, and all my cars, and every apartment I’ve ever rented – and I would assume most people do the same. I found it hilarious how much house/apartment/car I could get approved for. FAR more than I was willing to pay for.

    If your unwilling to do some simple maths to realize that your minimum wage job can’t support buying a Mustang GT, then you deserve what you get. If your unable, my gosh get some help before you go buy a car.

    People need to take care of themselves. As terrible as I think this corporation is, I really don’t see it as any different than a casino. It’s not the casino’s fault some people can’t control themselves. It’s not CACC’s fault that these people are too busy lusting over a shiny new car to realize they can’t afford it.

    You can’t fix stupid, you can fix ignorant if they are willing, but we shouldn’t legislate either one be helped.

    • 0 avatar
      DeadWeight

      https://www.nakedcapitalism.com/2017/12/corporatizatizing-administrative-university.html

      https://www.nakedcapitalism.com/2012/11/70-of-jobs-created-dont-require-a-college-education.html

      https://www.nakedcapitalism.com/2017/12/student-loan-defaults-approach-5-million-using-permissive-definition-default.html

    • 0 avatar
      notwhoithink

      “I completely agree that this is unethical…but on the other hand, we mandate everyone go to school and learn maths for a damn good reason. It’s not the least bit hard to figure out if you can afford a specific payment.”

      I partly agree with that. Everyone has to take math, but not everyone has to pass it. For that matter, not every one has to graduate school. I’d submit that this business is designed to pretty much prey on that subset of the population that was not successful in one of those areas.

      Honestly, what I’ve wanted to see schools implement for years isn’t just basic, theoretical math classes, but actual applied math classes. Understanding financial math and being financially literate is a huge part of becoming an adult, and our schools (for the most part) do absolutely nothing to help students in this area. Basic personal finance education (how to not get screwed by the man, the advantages of beginning to save for retirement when you’re young, etc) would go a long, long way.

      But I also think that a lot of these people get stuck in a situation where they need a car, but don’t have $2000 to pay cash for a Craigslist special. So they need to go someplace where they can get a loan, but nobody wants to do a 3 year loan on a $2000 car (rightly so), which is fine because the dealers don’t stock them anyway. So they end up having to finance more car than they want/need because they don’t have cash, and that’s where the problems really start. And yeah, maybe some portion of them think “the bank wouldn’t approve this loan if I couldn’t afford it, after all they’re the experts” instead of thinking “this is a den of vipers who is looking to try to screw me and take me for every penny I have and then every penny I earn for the next 10 years”.

    • 0 avatar
      bunkie

      The question you should be asking is where does CACC get its capital?

      The financial crisis was a godsend to the wealthy. It created an environment where subprime was, largely, closed to the big name banks. Any seriously wealthy investor will tell you that that commercial credit subprime returns are always double-digit with risk profiles of somewhere between 5 and 7 percent default. That means that, at worst, the hit on the return rate is lower than one percent. Can you or I invest in these bottom-feeding firms? No. You have to be a hedge fund which means that 99% of people are locked out. I was really appalled at the firms to who the hedge fund lent money. It was a who’s who of predatory commercial lenders.

      The hedge fund where I worked also made a killing in real estate. They benefited from a Federal program designed to add liquidity to the residential market by having the Fed buy in-default loans at face value with the idea that the properties would re-enter the market at properly adjusted (reduced) prices at which the banks would be comfortable making mortgages. This hedge fund bought as many of these properties as they could at the discounted prices and put them on the rental market, often renting to the very people who had been foreclosed. All through the years following the crisis they made fantastic profits both for their investors and for their founders, one of whom consistently made over $500 million each year, not counting appreciation in the firms stock.

      So when you place the blame on uneducated consumers, you are missing a large part of the puzzle, well-connected people with bottomless bags of money and even larger greed.

      • 0 avatar
        DeadWeight

        There is so much truth in what Bunkie just said (I’m a part of this industry) that it’s an hydrogen bomb of truth.

      • 0 avatar
        Jeremiah Mckenna

        Banks DO NOT RENT HOUSES! Period. I was in the Real Estate business for a long time, and actually worked with banks on the foreclosure end in one of the hardest hit areas of the recession. Never once did a bank rent a house to the occupants. In fact there was a program called “Cash for Keys,” where the banks actually paid the people, not the other way around.

        Banks do not want the property, they want the money promised by the borrower.

        • 0 avatar
          FreedMike

          This. What a lot of folks who aren’t in mortgage financing don’t understand is that banks typically lose a TON of money on any given foreclosure.

          The key driver behind the real estate bubble was, in fact, the boom in home values. If a bank factors in 40-50% appreciation into its risk evaluation, then suddenly a bad loan doesn’t look nearly as bad – from a certain point of view, it’s a “lower LTV.” In other words, if the bank has a higher shot of recouping its’ losses by reselling a foreclosed-on house, then it’s more likely to make a loan to a rotten borrower. I even knew of lenders who WANTED their borrowers to default so they could resell the home for a profit.

          The subprime junk loans were just designed to pump up demand and appreciation enough to moderate the risk of making riskier loans. The loans themselves were symptoms.

          • 0 avatar
            Scoutdude

            Yup the banks have lost a lot of money thanks to the rules put in place that made it almost impossible to foreclose while the home still had some value.

            However a lot of people figured out how to work the new rules and stay in their homes for many years w/o making a single payment. Of course when you know it is just a matter of time before the bank takes the house you don’t spend money fixing it or maintaining it. When many were finally forced out the door they took everything they could including the kitchen sink is a surprising number of cases. So once they finally got the house it was trashed and worth a small amount of the original loan value, and for several years they had spent a lot of money keeping it current on taxes and then having it maintained between the time the people left and they could sell it.

            Yes there certainly were lenders who thought the high appreciation rates would continue and keep them safe even with loans that had a high risk of default.

        • 0 avatar
          Scoutdude

          He didn’t say that the banks were renting houses, he said that the hedge fund companies were buying the reposed houses and turning them into rentals. The mildly funny thing is that many of those hedge funds companies actually created the problem in the first place by wildly throwing money at loans that had basically no underwriting requirements.

          • 0 avatar
            DeadWeight

            “After the housing bubble popped, millions of Americans lost their homes as property values plunged. Many saw this as a tragedy. Some big investors saw it as an opportunity. Private-equity firms led by Blackstone quickly bought tens of thousands of homes at deep discounts, most of them out of foreclosure. They converted the properties into single-family rentals, taking advantage of another opportunity — the ready market for rentals among the many Americans no longer able to buy homes because of the recession or tighter mortgage rules. Real estate investment trusts, private-equity firms and hedge funds have spent at least $25 billion purchasing more than 150,000 houses since 2012, by one count. This flood of money has upended a rental industry traditionally dominated by mom-and-pop owners, and introduced institutional investors around the world to an untapped asset class. Blackstone went on to invent a new version of the money machine that fed the homeownership bubble. Communities across the U.S., still recovering from a housing crisis fueled by Wall Street speculation, were left to assess how they’ll fare with out-of-town money managers as their most powerful landlords.”

            https://www.bloomberg.com/quicktake/rent-wall-street-is-my-landlord

            This is from Bloomberg, not Mother Jones.

            Blackstone is a Too Big To Fail entity that will pass future losses onto U.S. Taxpayers during the next big downturn.

        • 0 avatar
          Malforus

          Where do you get the impression that banks don’t rent houses?

          Ever since the creation of the REIT banks love being in the habit of renting houses, warehouses, and corporate spaces. They just don’t like having individual houses on the balance sheets of their mortgage department. What you are saying is that consumer facing mortgage departments don’t rent houses.

          They just acquire the house and then move the asset to another part of the banks portfolio, either liquidating it through an auction or transferring it into a REIT owned by the bank:

          https://books.google.com/books?id=5dK6AQAAQBAJ&pg=PT206&lpg=PT206&dq=banks+create+their+own+REIT&source=bl&ots=XWqwXua7IP&sig=1MgbPT1W_AlWPJ8n4lM3Ppl0xVE&hl=en&sa=X&ved=0ahUKEwijkraK577YAhWDk-AKHTSGCIkQ6AEIOjAD#v=onepage&q=banks%20create%20their%20own%20REIT&f=false

          As for your glib “Cash For Keys” statement, not only are you being intellectually dishonest you are misrepresenting the situation. “Cash for Keys” isn’t a good faith effort entered into by the banks but rather a financial calculation to optimize for least money spent.

          Cash for Keys is a way to convince a resident of a property to vacate the property and is frequently rolled into foreclosure proceedings. ITS NOT A BENEFIT TO RENTERS ITS A BRIBE TO CONVINCE THE RENTERS NOT TO SEEK LEGAL PROTECTION OR RETALIATION FOR BANK EFFORTS TO EVICT THEM. Cash for Keys offers are the bank giving money to people as a settlement to not prosecute the eviction and foreclosure further in court. Its a settlement not a program to help renters.

          Cash for Keys is effective for the same reasons you mentioned in your other post. People are bad at financial math and will usually take an asset or currency to be higher value than a right or piece of paper indicating debt.

    • 0 avatar
      Jeremiah Mckenna

      But you also have to understand that there are a lot of people out there with these loans that make enough money to pay their bills, they simply choose not to. I don’t understand why that is, but they think it is fine to “stick it to the Man.”

      I have been writing up a credit application and hear the person say they make $50k a year and have a low rent payment. But when you run their credit, they haven’t paid anyone, ever. Then they want a loan with a low interest rate and at a long term. So this goes both ways.

      Should there be a high rate on low credit scores? I don’t think so, I believe it should be based on history, not current events. I also think there should be a better ‘first time buyer’ program than there currently is. I know a lot of people that can’t afford the payments on an entry level vehicle because of the high interest.

      I guess that if I had a loan/finance company I could make the rules concerning my money.

    • 0 avatar
      sirwired

      I have a problem with the very idea that somebody “deserves” to be the victim of some unethical scheme.

    • 0 avatar
      Detroit-Iron

      @theBrandler

      That is a facile argument that abets fundamentally unethical or downright evil behavior. “It’s not the least bit hard to figure out if you can afford a specific payment.” OK, so can you navigate using the stars? Can you run a marathon? Can you survive a childhood of unrelenting abuse from your “Uncle”? Can you finish a Kart race ahead of dead last? Can you ride a motorcycle? Do you know how to dock a power boat? What about a sailboat? Can you solve a diffy q? Do you know when and why it actually makes sense to waste a dollar on the lottery? Can you fix a transmission? Manual or automatic or both? Can you keep your kids off drugs? Can you avoid predatory lending practices? Apparently the answer to the last question is yes, but we don’t know about the answers to any of the others and you don’t know the answer to what the victims of these dirtbags can or cannot do, other than that they apparently can’t avoid predatory lenders.

      It brings to mind the old racing cliché, “Fast, right, or cheap, pick two.” Can you do all of those things? Faced with the choice, which of them would you pick?

      • 0 avatar
        Detroit-Iron

        L’esprit de l’escalier

        I literally just walked down the stairs.

        Even if you feel that these poor people deserve whatever they get, by using the courts CACC has effectively outsourced not only their collections BUT ALSO THE RISK OF THE LOANS THEY SHOULD NOT HAVE APPROVED IN THE FIRST PLACE* to the city of Detroit. When the people can’t pay their judgments are they supposed to get locked up at Michigan/Detroit taxpayer expense? This is the very definition of a moral hazard.

        *sorry to channel my inner BTSR but this is just over the top.

  • avatar
    DeadWeight

    The irony of Jack Baruth criticizing the ethos (or, distancing his own set of morals from that of these financial firms), of Credit Acceptance Corporation.

    Credit Acceptance Corporations and the MANY firms like it that dominate the American economic landscape are people like Trump’s dreams come to fruition on earth; having a society where supplying “loans” in the form of digitally transferred 1s and 0s gives legal authority to firms to charge anywhere from 18% to 550% interest (APR) on loans for necessities of life.

    This is the end of the financialization of an economy, whereby the rent-seekers have more economic incentive, far more profitability, and political power than the firms that actually design, engineer and MAKE the actual durable products such as vehicles and vehicle parts that those financial firms loan money out on (Credit Acceptance Corporation probably has an annual net profit margin 5x to 15x that of Ford Motor Company over the course of anything longer than a 5 year period, and many vulture financing firms are probably multiples more profitable than that).

    This is the final stage of a rentier-economy, where debt and the increasing need for debt, produces outsized profits for those firms that do nothing other than loan debt/credit, and the companies that design, engineer and build physical goods – even high value-added ones such as vehicles and aircraft and optics and advanced medical equipment, are lucky to reach a 8% profit margin before taxes, after investing 10,000 times more in CapEx than the Credit Acceptances of this world.

    Welcome to the future, still ramping up.

    How Some Payday Lenders Charge Over 700% on Loans
    https://www.cnbc.com/id/49035819

    http://www.motherjones.com/politics/2016/04/car-subprime-bubble-auto-loans-credit-acceptance-don-foss/

    • 0 avatar
      TheEndlessEnigma

      Someone was bound to bring politics into the “discussion”.

      • 0 avatar
        DeadWeight

        Some people HAVE TO HAVE BALLS AND BE DIRECT AND HONEST IN THIS WORLD.

        • 0 avatar
          Jeff Semenak

          Ok, Dead: Direct and short, like you asked. From Bloomberg
          “But that ratio soared last year, with the purchase program making up 21 percent of new loans in 2016. The number of purchase loans underwritten increased 88 percent even as the risk-sharing portfolio program dipped 0.2 percent. A quarter of its $4.5 billion loan book now comprises loans it owns outright, up from 16 percent at the end of 2015.” Apparently, that other guy was the one who encouraged it. And, the so-called Consumer Protection Bureau was ok with it, as well.

          Long story short, suck it with your political jibes.

    • 0 avatar
      hreardon

      “I sincerely believe that banking establishments are more dangerous than standing armies;” – Thomas Jefferson

      While I agree with your sentiment, the willingness of many to effectively dismiss personal responsibility and eliminate any need for the individual to actually think before making decisions is extremely dangerous in its own right. As a natural law, the Pareto Principle dictates that you will always have a minority of the populace who control the money/power/resources/means of production. The only way to blunt that is for everyone use to *think* for themselves and to say ‘no’.

      When I took out my mortgage in 2005 I requested a $120,000 loan from the bank, which was based on what I knew I could comfortably afford at the time. The bank came back and offered me $350,000, to which I laughed and (no joke) said to the loan officer, “if you guys are dumb enough to give me $350,000 to play with, you all are the suckers.”

      There was no magic in how I came to the affordability calculation. It was basic math.

      When it came to college many years ago I did a similar calculation: in order to afford a $150,000 four year degree, I better make it count. I chose my majors accordingly, tracked down every bit of grant money and income based deductions I could find, worked on campus and avoided every frivolity I could. That got my total personal cost down to $75,000, of which my parents helped with half and the other half was in student loans. I then moved back in with my parents for a year after college while I worked to pay off the balance on my loans.

      The issue has as much to do with the suppliers of finance as it does with the marketers and the consumers of finance. The housing bubble came about because government and private industry convinced everyone that they should own a home, then provided the legal and financial resources to do just that. If anyone stopped for five minutes to think, “hey, how am I going to afford a $350,000 home on a $40,000 salary with a $5,000 down payment?” the whole thing would have regulated itself. But that’s not how human beings work.

      I look back at the housing collapse 10 years ago: since the originators of the loans had very limited liability and were passing the paper upstream to someone else (“not my problem”), they had every incentive in the world to write bad loans.

      College education is much the same way: government and industry have convinced everyone that they need a 4 year degree. By providing government backing of those loans (which cannot be eliminated in bankruptcy),virtually all risk has been removed from private lenders. As the money flows in, schools are becoming bloated, private equity is pouring in to build student housing fit for kings and students are graduating with $100,000 in debt for a degree that pays $30,000. Again, if people stopped for a moment to do the basic math and the liability was placed on the loan originators, they would be a lot more careful about who they lent to. Loans would be harder to get and the amounts for less, forcing a shift in the cost structure (likely lower). But again: 18 year olds see free money and four years as a looooong time horizon.

      We cannot make any system fool-proof. As Ron White says, “you can’t fix stupid”, and stupid people are always going to make stupid decisions. But I firmly believe that if we actually taught people to use their brains, to question things put in front of them, to think before acting, we could significantly reduce the ability of the financial class to pillage the rest of society.

      • 0 avatar
        DeadWeight

        Up to 591%: Ohio has highest APR on short term loans in U.S.

        http://www.mydaytondailynews.com/news/591-ohio-has-highest-apr-short-term-loans/UqTAzYsHAnaHh58dt0PeAM/

        The money lenders shall inherit the earth.

        • 0 avatar
          Jack Baruth

          That law was written by and for a fellow named Jim Frauenberg, a former neighbor of my father who owns the majority of check-cashing stores in Ohio.

          If you’ve ever wondered how profitable check cashing is, then Google Jim and you’ll learn. He owns Lou Gehrig’s complete final Yankees uniform and he’s donated millions of dollars to his pet causes.

          • 0 avatar
            DeadWeight

            I want to add to/amend my response to you above (ethos and Trump comment) –

            There is no difference, or an insignificant one, between how helpful Republicans and Democrats are towards facilitating the financialization of the U.S. Economy.

            So, both (allegedly) “different” parties are in on the racket, bribed easily by the “financial services industry,” while trying to win votes on social wedge issues (e.g. Wedding cakes for gay couples, as I’ve always maintained are the appropriate province of the judiciary).

            And this is why so many Reagan Democrats voted for Trump over Hillary; they’ve come to believe, through Trump’s forceful rhetoric, as an outsider, non-establishment candidate, that he was their on,y real shot at a shakeup of the two-party oligopoly, and that they’d have nothing to really lose by gambling on him in his pledge to follow through and represent the working class and middle class (“forgotten class,” abandoned by both establishment candidates of the Rs and Ds), even as he has (IMO) done far more for the Icahns and Devosses and Adelsons and Schwartzmans (Blackrock) of the world, by a 100,000,000,000,0000,000,000 to 1 margin, than he’s done or will ever do for throat forgotten class.

            Regardless, the increasing and accelerating road to total debt-serfdom continues unabated in America, and is accelerating at a rapid clip.

    • 0 avatar
      markf

      “Credit Acceptance Corporations and the MANY firms like it that dominate the American economic landscape are people like Trump’s dreams come to fruition on earth”

      Yes, none of these loans or companies existed until 20 Jan 2017, it is all Trump’s fault.

      You lose what little credibility you had when you try to cite “Mother Jones” as a news source

      • 0 avatar
        bunkie

        You are right. These firms existed before. But the election of Trump meant that those pesky people who wanted to regulate this predatory behavior have been neutralized and Trump and and his wealthy supporters can breathe a sigh of relief. And, to boot, they will pay a lot less in taxes. So, given that, tell me how Trump’s election didn’t make their dreams come true?

        • 0 avatar
          FreedMike

          This.

          The change that’s happened is simple: we’ve gone from merely tolerating people who legally screw everyone on their way to getting rich to giving one the keys to Air Force One.

          We used to tolerate greed of that kind while holding our noses. Now we celebrate it.

          That’s a rather large change.

          • 0 avatar
            Jack Baruth

            Well, the alternative was a candidate who rigged her own primary and told Goldman Sachs during a closed-door meeting that you “have to have a public and a private position” during an election.

          • 0 avatar
            FreedMike

            Well, I’ll disagree with you on the “rigged primary” bit (in the end, Sanders got outvoted, plain and simple). And, yes, the DNC wanted Hillary to win (she was bankrolling the party, after all), but it’s not unusual for the party bigwigs to prefer one candidate. They certainly didn’t prefer Obama in 2008, and the Republicans didn’t want Trump last year, either. In the end, the voters had their say.

            As disgusting as Hillary was, though, she at least said this behind closed doors.

            But Trump’s a whole different ball game. All this attention is giving him a perpetual boner, and he doesn’t give a f*ck who knows it.

            If Trump was truly a reformer, and the swamp was truly being drained, I’d hold my nose and go along. Unfortunately, the swamp is just being filled differently now.

            Ah, well, I’ll just wait for the 12,332,112 job offers that will all come with an automatic 18% pay raise and signing bonus, paid for by the MAGA tax cut.

          • 0 avatar
            ClutchCarGo

            The real “rigging” of the primary was not via the primary process, it was by HRC successfully discouraging most challengers this time around from entering the race in order to avoid what happened to her in 2008. Not really deceitful but neither was it productive.

            As to “a public and a private position”, we all do that every day in our lives. It’s the only way that we can ever get along enough to survive. At least with HRC we would still have a CFPB making some effort to enforce the kind of morality that you yearn for in your post instead of an agency headed by the man who called for its elimination.

          • 0 avatar
            FreedMike

            Was it a case of her discouraging competitors, or a) her potential competitors knowing she was probably a lock, or b) no decent potential competitors to begin with?

            I’d say mostly b).

            Bernie Sanders was NOT politically attractive to a large slice of Democratic voters, and that included me.

          • 0 avatar
            ClutchCarGo

            From the political reporting that I saw in the run up to the 2016 primaries it was neither of those. The Clintons used their considerable clout quietly and behind the scenes to convince and coerce potential candidates that 2016 was her turn. There were certainly senators and governors who had potential. But if she did win the presidency (which she did by the popular vote), one would not want to be on her bad side, and that was made clear.

        • 0 avatar
          Jeremiah Mckenna

          You do realize that President Clinton and then Senator Obama was in a large part responsible for the lending institutions being FORCED to lend to undeserving people.

          • 0 avatar
            FreedMike

            Nonsense. I’ve been in the mortgage biz for 18 years, and the “forced loans to poor folks” line being pushed by certain ideologues was just incorrect.

            a) No one was forced.
            b) “Community lending” products (the ones you’re referring to) all required full documentation of income, assets, employment, etc. Most applicants got declined (I know – I underwrote the loans).

            On the other hand, I also underwrote probably five zero-doc loans a day for stated income folks who weren’t poor, weren’t unemployed, and had good credit, and were allowed to borrow FAR too much money for houses they intended to flip. Those are the borrowers that caused the market crash.

          • 0 avatar
            Scoutdude

            @ FreedMike, you are correct those community lending products required proper underwriting standards. While I’m sure there were those that may have stretched the truth a bit the much bigger problem was all the private money being thrown at the no-doc loans as long as the borrower had a semi reasonable credit score. Lots of the people who got in the biggest trouble where those that used their house as a cash machine 80/20ing every penny they could out of their house.

        • 0 avatar
          markf

          “But the election of Trump meant that those pesky people who wanted to regulate this predatory behavior have been neutralized”

          Show me one iota of evidence that this is actually happening

          • 0 avatar
            FreedMike

            Perhaps you should open a newspaper.

          • 0 avatar
            markf

            “Perhaps you should open a newspaper.”

            Let’s see, I am under 80 so I don’t read newspapers.

            Or, since this is sooooo obvious and there is ample proof you could provide one iota proof instead of trying to flick the burden of proof on me…..

          • 0 avatar
            Malforus

            He violated the rules of succession in his CFPB appointment, a man who’s literal espoused belief is that the Consumer financial Protection Bureau should not exist.
            http://www.cnn.com/2017/11/25/politics/trump-consumer-agency-appointment/index.html
            https://www.cnbc.com/2017/11/27/trump-is-attempting-an-end-run-with-his-cfpb-appointment-attorney.html

            He also has pushed to remove Dodd-Frank in addition to other consumer protections to “reduce the regulatory burden on Banks”.

            You know lets make life easier for the people who put a cocked and loaded gun to the world economy and still got their bonuses because lets face it, they could have been fine while the world burned.
            https://www.washingtonpost.com/news/wonk/wp/2017/06/12/treasury-calls-for-scaling-back-banking-rules-citing-need-for-growth/?utm_term=.a5ad85a65c6a
            http://theweek.com/articles/723199/how-trump-launched-biggest-regulatory-rollback-american-history

            All this from a man whose son in law uses the same “courts as bank collectors” approach for rent collection:
            https://www.villagevoice.com/2017/11/15/jared-kushner-sued-for-allegedly-overcharging-tenants-again/
            https://www.nytimes.com/2017/05/23/magazine/jared-kushners-other-real-estate-empire.html

            This is a pattern, Trump doesn’t want regulation because he is most popular with the people who stand to gain the most from relaxing laws on predatory loan and real estate transactions.

            He is popular with billionaires because billionaires stand to gain the most and here are a few narratives that support that.

            I have seen you post before and upon citation you refute the validity of the source material. I ask you to review the presented information and respond with specifically what is subjective assertion and what is objective truth so we can continue this civilly.

            Its entirely possible you were unaware of his history of using lawsuits as a weapon. Most clearly in his browbeating he did to get a nice profit on Empire State real estate even though he had no fiscal interest.
            https://www.npr.org/2016/05/10/477041094/the-empire-state-building-and-the-art-of-trumps-deal

            https://www.usatoday.com/story/news/politics/elections/2016/06/01/donald-trump-lawsuits-legal-battles/84995854/

            So there is absolutely a discussion to be had here but there is absolutely evidence that Trump has clearly stated he hates financial regulation: https://twitter.com/realDonaldTrump/status/934539256940417024?ref_src=twsrc%5Etfw&ref_url=https%3A%2F%2Fwww.nytimes.com%2F2017%2F11%2F27%2Fbusiness%2Ffinancial-regulation-rollback-trump.html
            Mind you he says financial institutions have been devastated….it has been the best decade for banks since the crisis in history.

            Only post WW2 has the corporate financial had a better set of years in both growth and return on investment.

    • 0 avatar
      Jeremiah Mckenna

      Since you used Mother Jones as your source, I know you don’t know what it is that you are talking about, nor how things in the real world actually work.

      Let me explain it to you. Certain people in this world don’t repay their debts. So when they continue to work in this manner and think that they need certain things to make their lives better, they need access to funds. So in order to facilitate these requests, there is a price associated with the lender. Most of the people that continue to borrow and NOT REPAY their debt are subject to higher rates. Why? Because they rip off the banks by borrowing money and not intending to repay after a certain point.

      Yes, there are also new credit buyers. These people tend to be younger, but also get a little better rate than the slugs that abuse the banks. Also, these people pay their bills and get better rates as time goes on. The main thing to look at here is the fact that as time goes on and you pay your bills and get better credit you can trade in the car fora newer one with a lower rate or refinance the car with a bank that will give you a lower rate. I see this happening all the time.

      The same goes for houses. There are people that know they can’t afford a certain house payment, but lie to themselves and the banks and move into the house, only to foreclose on the loan a few months or years later based on their personal financial decisions.

      Were there predatory lenders in the home lending arena? Absolutely, and those people should be in jail for a long time. However, there are two people on the loan, the lender and the borrower. If you only make a certain amount of money you should be able to figure out if you can afford a payment.

      There is also a lot of loss concerning these lenders that you apparently forgot to notice.

      • 0 avatar
        hreardon

        I’ll echo some of what Jeremiah says: we paint with big, broad brushes so that financiers are evil psychopaths and debtors are all disenfranchised and taken advantage of.

        Reality is far more nuanced. Sure there were people conned into unrealistic mortgages and sure there are people who are taken advantage of by usurious loan interest rates. I’ve seen how the big mortgage companies used to take advantage of someone missing a mortgage payment by a matter of hours, resulting in the automatic initiation of foreclosure proceedings – which immediately led to penalties that the borrower could rarely afford. These things happen, but the instances are small compared to the larger pool.

        High interest loans have taken the place of loan sharks who use far less legal means of collecting their debts. Ethical and moral? Perhaps not, but people are not being forced to sign these loans at gunpoint.

        • 0 avatar
          SSJeep

          Without reducing my reply to the political drivel above (seriously, if you are that politically hurt about living in the USA right now, just move elsewhere. Its easy, people do it all the time. That doesnt mean one will be wanted in their utopia), I am in full agreement with Jack on this one. This is an absolutely toxic lending model and should be regulated, even moreso than the current payday lender model.

          The reason that this hybrid model needs regulation is that it intentionally traps already disadvantaged people into loans that they knowingly cannot afford, and then relies on the court system (and by extension, taxpayers) to do the heavy lifting of collecting on the debt. CAC takes virtually no risk on these loans since they leverage the court system to do their bidding rather than paying an internal collections department. If there was ever a time for “activist judges”, this would be it.

          • 0 avatar
            Malforus

            @SSJeep

            Very true, there is a wide middleground where we can agree this kind of exploitative behavior is unfairly burdening the court system without devolving to statements about political ideology.

            There needs to be some kind of blowback towards CAC filling the courts as part of their business model. Something like the findings in the MPAA Ransom cases would be appropriate.

      • 0 avatar
        ClutchCarGo

        “Certain people in this world don’t repay their debts.”

        https://www.wsj.com/articles/donald-trumps-business-plan-left-a-trail-of-unpaid-bills-1465504454

        I presume that this is a source that you would believe knows what they are talking about and understands how the real world actually works.

    • 0 avatar
      monkeydelmagico

      404 error irony not found

  • avatar
    CincyDavid

    Well, to be fair, people can just hop on the bus and get to work…if they can’t afford to insure, maintain, and pay for the car, they can’t afford to have a car. A car is simply NOT a necessity for many people. They can’t differentiate between needs and wants.

    I’ve been broke but I’ve never been poor…it’s a different mindset.

    • 0 avatar
      gomez

      Actually, in rural America that is not true. My town offers no bus service other than school buses. So a vehicle is basically a necessity to get to/from work and to get groceries. And a good chunk of the subprime loans are going to people in rural areas.

    • 0 avatar
      vvk

      Not in the US, with very few exceptions.

    • 0 avatar
      notwhoithink

      Assuming that you live in a city with bus service, and that the bus routes get you anywhere near your job/jobs, and that the buses run the hours that you need them to be running to get to your job, then yes. But then you also need transportation for other things. Need to get to the store and are stuck living in a food desert? Maybe you have children who need to get to the doctor from time to time, or god forbid, to the hospital for an emergency? I remember years ago when my 1 month old was ill. We took her to the doctor, who said “It looks like meningitis, take her to the ER at Children’s Hospital immediately and we’ll let them know you’re coming.” It’s all well and good for us middle-class suburban two-car family types to manage those two trips (first to the suburban doctor, then to the downtown hospital). But how do you manage that if you can’t even afford a car? Two cab rides that you have to wait on and that you can’t afford?

      • 0 avatar
        CincyDavid

        If an individual lives in a ghetto with no food stores, and has kids they can’t afford, and no health insurance, the auto loan issue is just the culmination of a series of poor decisiona, and perhaps the least of their worries.

        I have a 23 year old step-daughter whose idea of long term planning is deciding what outfit to wear Saturday night and she is probably going to have money issues the rest of her life. We even had a discussion with the attorney the other night about setting up any inheritance she may ever get from us in a trust. Like I told the att’y, “if you gave her a million bucks, she’d have $8 left after 6 months and no clue where it went”

        As long as there is a demand for bottom-feeder lenders, there will be a supply.

        • 0 avatar
          Malforus

          Sounds like you married a real winner who did a great job raising that kid. You put as much distance between your daughter via your wife as you could there so its clear you want to indicate how much its not your fault that kid is awful with money.
          I mean if we want to use broad brush strokes in describing people.

          Some people are born into a crap situation and dumping on the inner city poor is a shitty way of espousing financial responsibility. I mean why even mention “The Ghetto” when the majority of unserved by public transit America (and the topical predatory auto loans) are in suburban or even rural areas.

          Though since your avatar is an empty suit, I get the feeling your some sort of hyper-libertarian sock-puppet trying to stoke racist stereotypes while drumming up a flame war.

          I mean I am sorry your Daughter in Law is so bad with money, that really sucks and it likely is a source of lots of frustration in your marriage, but as someone who is dealing with other peoples bad financial decisions one would assume a bit of empathy for people who are getting a raw deal through a bait and switch.

          It feels like there is more going into your comment defaming the mooks who get tricked into a bad loan than a feeling of “THEY DESERVE IT, YOU STUPID FOOLS.” Its like something else is bleeding over into it.

          The post is about unethical behavior in lending, and somehow you invoked dogwhistles about the urban poor.

    • 0 avatar
      thegamper

      I live in the Detroit Metro area, in a fairly well heeled suburb. I know for a fact that mine, and several of the affluent communities deny the local bus service access to their cities because they do not want anyone who would need bus service to be in their city. So, with no personal transportation, you are out of luck if you want to live or work in one of these cities.

      On the topic of subprime loans, I agree that there must be some regulation to stop the worst of the predatory practices. But also see the need for subprime lending in general. It is not all bad, there are legitimate reasons for subprime borrowers to finance something. In the end, there has to be some way to protect those who need protecting…and yes, they need protecting from the wealthy financiers, not protection from themselves and poor choices.

    • 0 avatar
      SirRaoulDuke

      This is simply not true for rural American and vast parts of suburban America.

  • avatar
    OneAlpha

    “…the biggest dealer in our market made good on his threat, going to GE Capital for floorplan after a remarkable meeting in which he showed up apparently coked to the gills in a new Cobra R and screamed at our management loudly enough to be heard through two layers of sound-insulating glass.”

    All my life, I’ve heard tell of something called “maturity,” which is apparently a level of self-control, dignity and moral consideration that only angels and the Almighty possess.

    I’ve never met a single human being who qualifies, that’s for damn sure.

    • 0 avatar
      PandaBear

      “…the biggest dealer in our market made good on his threat, going to GE Capital for floorplan after a remarkable meeting in which he showed up apparently coked to the gills in a new Cobra R and screamed at our management loudly enough to be heard through two layers of sound-insulating glass.”

      This is why GE almost went out of business. If I were Bill Ford I’d totally be happy not to approve such a loan and let GE Capital take the hit for me, and still sell a car.

  • avatar
    hirostates12

    As with the housing loan fiasco, this lender behavior will self correct once it stops being profitable. A lot of people who should have known better will get hurt. Many crocodile tears will be shed by those at fault and the next loan bubble will begin somewhere else.

    • 0 avatar
      DeadWeight

      Many of the money lenders have bribed CONgress to deem them as part of the systemic risk cartel, meaning that no matter how reckless their actions, they’ll receive full, or at least partial, taxpayer-backed bailouts.

      The economic system now works for the benefit of the most lenders and rentiers, and not the makers (the disparity between their profit margins and capex requirements has never been higher in the history of the nation).

      People in every part of the country are already being put into collections (with astonishingly high interest rates, penalties and other fees) for being delinquent on basic utilities such as water, electricity and natural gas – the future of the American Economy is 21 layers of debt on necessities of life.

      • 0 avatar
        PrincipalDan

        What’s the opposite of progress?

        CONgress.

      • 0 avatar
        hreardon

        Deadweight –

        Banks aren’t stupid. They know they can wreck the entire system if they want to – and in 2008 they came, quite literally, within one hour of blowing the entire financial system back to the 1930s. Congress is complicit. Most of the deregulation in the 1990s led directly to 2008.

        Regulations cut both ways – and yet become entirely sensationalized. Knowing a lot of people in finance – I understand the mindset. They are the proverbial foxes in the hen house – if you let them in, they will slaughter everything. They’re just wired that way. Likewise, the ultimate check on this is to have a vigilant and engaged citizenry; something we have given up on.

      • 0 avatar
        hirostates12

        Don’t the clients also have some level of responsibility for their actions? I agree that the system is, and will always be set up to take advantage. However, in most cases lenders are only playing on the American consumers infinite desire for more and more “stuff”.

        Our own psychology makes us perpetual “marks”.

        • 0 avatar
          hreardon

          As Don Draper said in “Mad Men”: “People buy things because it makes them feel better. That’s why advertising exists.”

          Or, as the Buddhists say: Desire is the root of all suffering.

    • 0 avatar
      gomez

      Tell that to the student loan industry. Those douchebags even made it so that their particular type of evil is exempt from bankruptcy proceedings. It’s just a matter of time before other types of lenders get that protection written into law.

      • 0 avatar
        S2k Chris

        “ Those douchebags even made it so that their particular type of evil is exempt from bankruptcy proceedings. ”

        That’s why an unsecured loan for student loans has a single-digit percentage interest rate, versus any other unsecured debt which is almost always around 18%+. And why 17-18y/os with no credit history can get a student loan but not a large car loan, significant credit card, etc.

        We could make student loans dischargeable, but do you want to see them with 25% APRs?

        • 0 avatar
          hreardon

          25% student loans would fix the cost of higher education problem virtually overnight.

          • 0 avatar
            bullnuke

            @hreardon – Right on.

          • 0 avatar
            jkross22

            “25% student loans would fix the cost of higher education problem virtually overnight.”

            Not as long as it’s a government guaranteed loan.

          • 0 avatar
            FreedMike

            The “higher interest rates will bring costs down” assertion is false.

            https://fred.stlouisfed.org/series/MSPNHSUS

            https://www.valuepenguin.com/mortgages/historical-mortgage-rates

            The first chart tracks housing prices over history. Pay particular attention to the late ’70s and early ’80s. The second chart tracks median mortgage rates.

            Even with rates approaching 20%, the impact on housing prices was minimal.

            Like housing, education isn’t a want – it’s a need. When it comes to needs, people can charge whatever they want…like the vultures who run the company in this story.

            What WOULD help the cost of education is simple: less frills and programs more focused on the specific skills needed to prepare the student for whatever he/she wants to do.

          • 0 avatar
            DeadWeight

            If there was any real, significant interruption in the subsidized student loan racket (in a way that it became higher rate, based on true risk of default, etc.) approximately 33% of universities and colleges would fold within 3 years, and another 33% would have to lay off 25% to 50% of their overcompensated ad administrative and teaching staff.

            The reality is the Big Education is a racket, designed to serve the people who run the institutions, pad their bank accounts, and give them employment security and health and retirement benefits that even many well-compensated private sector employees would be envious of.

          • 0 avatar
            ClutchCarGo

            It might help to cut back on the most egregious for-profit colleges but it wouldn’t fix the cost problem as long as companies continue to expect applicants for even the most basic of jobs to have a degree. As long as the demand exists costs will stay high.

        • 0 avatar
          markf

          “student loan racket”

          Just make us a list of what is not a racket, it would be shorter and save you and us a lot of time…..

  • avatar
    stingray65

    The chronic poor typically have no willingness to delay gratification, which is a major reason they are chronically poor. Saving a few bucks for a rainy day (i.e. for when they need car repairs or a new(er) vehicle) is just not in their mentality, and if they have $100 and can get a loan for another $100 they spend all $200 on any frivolous trinket that catches their attention today and worry about rent, food, and loan payments later. Teaching these people math is not going to solve the problem, and lending agencies that forbidding/restricting credit to these people is likely going to get the agencies some unwanted attention from race hustlers and government “equal right” agencies because certain racial groups would “over-represented” in the credit restricted classes. Forbidding such lending will also hurt more responsible people who have a run of bad luck, because they might need such lenders to get back on their feet, so cutting off such credit solves some problems but creates others, and the poor will always be with us anyway.

    • 0 avatar
      hirostates12

      Research has shown that poor impulse control as a child is a strong indicator of behavioral problems as adults. So much has already been dialed into our adult behavior that by the time we are old enough to sign a terrible contract it is likely we don’t have the capacity to resist.

      • 0 avatar
        DeadWeight

        This is the “you get 1 cupcake if you est it now, but two if you can be left alone for 15 minutes, and wait patiently” child experiment.

        The ones able to delay gratification are overwhelmingly more successful later in life in terms of divorce rates, debt levels, non-incarceration, levels of income, jobs stability, substance abuse non-issues, etc.

        They tracked large groups of these kids from the age of 7 to their 30s.

        But this has nothing to do with the fact that economies such as the U.S., Canada’s, and others (especially the U.S. given lack of real consumer protections and financial firms wielding massive political power – they ghostwrite most of the laws) are essentially increasingly parasitic rather than value-added, or that there is a disincentive to start or continue a business such as auto parts manufacturing, versus becoming another Credit Acceptance Corporation (which will lead to a 2nd tier or 3rd tier economy if trends continue).

        • 0 avatar
          hreardon

          DeadWeight –

          Good point on delayed gratification. My wife has studied this in depth as an educator and would agree wholeheartedly (along with the Bell Curve being spot on accurate, politically incorrect though it is perceived to be).

          While I agree that increased financialization is parasitic, this is a rinse-wash-repeat story. The Old and New Testaments both warned about the dangers of the money changers, as did the Greek and Roman philosophers.

          • 0 avatar
            ra_pro

            That’s why prophet Mohamed said the “h*ll with money lenders” and created some of the most backward economies in the human history.

            If money is blood to the economy why should a single group manage and own it this vital resource? Right here is the fundamental problem of the western capitalist system. A private business managing collective resource obviously to their own advantage. They would be literally stupid if they managed it any other way. This is a structural problem of which ethical failure is only a symptom.

            A simple logic dictates that a collective life-preserving resource be managed collectively for the benefit of all participants not just private money managers.

            Private money management cannot work over the long term even though it may have worked for a few centuries. Eventually the private money managers will find a way of killing the whole system as they almost did in 2007 when trying to game the system to their maximum advantage. This is inevitable, we just don’t when and how this will happen but we had a dry run in 2007.

    • 0 avatar
      FreedMike

      Is it an inability to delay gratification, or an inability to find workable alternatives?

      I’d say both are true. For every case where some idiot just signs up for a cool car he can’t afford for the sheer f**k of it, there are two cases where people are just looking for something with four wheels to get them back and forth to work.

      For the latter crowd, who can’t depend on insufficient public transit (a rotten situation brought to you in no small part by the “the big bad gummint takes my taxes at gunpoint” crowd), then an outfit like this is their one choice.

    • 0 avatar
      sirwired

      I’ll be awaiting the volumes of well-documented research you’ve done into the purchasing habits of what poor people “typically” do.

  • avatar
    PrincipalDan

    “I went into the mailroom and did pushups until I felt I had control over my impulses.”

    Sigh… I know the feels.

    I also remember my mother’s face after a particularly boring Sunday morning in the pews when I said: “If lusting in your heart is a sin, every man is going to hell.” I was about 13 at the time.

  • avatar
    Kendahl

    It’s not just unethical businesses that are fleecing the poor. The city of Ferguson, Missouri balanced its budget on their backs with fines for chickenshit offenses and penalties on top when they couldn’t afford to pay the fines. The number of outstanding warrants for such garbage exceeded the population.

    • 0 avatar
      DeadWeight

      It was never supposed to be this way in the United States –

      “…here is a growing practice — especially in states like Ohio, Missouri, Minnesota, Illinois, Pennsylvania, and more — by judgment creditors who use the court system to put debtors in jail if they don’t pay their debts.”

      In one-third of U.S. states, people can be jailed for failing to repay debt

      The New Bill Collector Tactic: Jail Time
      https://www.nolo.com/legal-encyclopedia/the-new-bill-collector-tactic-jail-time.html

      • 0 avatar
        FreedMike

        That’s somewhat misleading, DW…you can’t be jailed for not paying simple civil debts. You *can* be jailed if the creditor requires you to file paperwork with the court, such as discoveries, and you fail to do so. In that case, the creditor can ask the court to find you in contempt. That triggers the possibility of jail.

        But more to your point, the reason this kind of onerous garbage happens is that there’s money to be made.

        • 0 avatar
          jkross22

          “But more to your point, the reason this kind of onerous garbage happens is that there’s money to be made.”

          And as someone else pointed out, we have a disinterested, ignorant, financially illiterate voting population.

          • 0 avatar
            FreedMike

            Yep. But I don’t see how you make failure to comply with a court order legal just because the order is part of a debt collection action.

  • avatar
    PrincipalDan

    “a perpetually frustrated African-American woman suffering from painful carpal-tunnel and joint pain issues, saying to me, “Jack, you and I both know that kid doesn’t need an F-250 to go to his job. Offer him approval on a Ranger… tell him he can have a 4×4 if he doesn’t ladle on the options.”

    “a mousy-looking and deeply reserved early-thirties woman named Tina who was a dead ringer for actress Kristen Wiig. She had an uncanny, almost psychic, nose for straw purchasers. She could look at an application for 10 seconds and tell me who was really going to be driving that new Bronco or Tempo.”

    God bless both those women and I sincerely hope they found a job that brought them true satisfaction and a feeling that the were helping people.

  • avatar
    tallguy130

    Being poor and uneducated has never been more expensive…(sigh)

  • avatar
    AoLetsGo

    A long time ago in a place far far away, the good folks at FMCC were hand-wringing as they contemplated a new line of business. Harley Davidson wanted them to be the company that provided loans to people that wanted to buy their motorcycles.

    The suits living in suburban Detroit could not wrap their heads around loaning money to a typical Harley rider. They did not want to be in the business of repo’ing motorcycles. Remember this was a time well before your dentist/Wild Hogs riders.

    Long story, short is that these turned out to be low risk loans.
    Those scruffy people who rode to live would sell their home or dog before they lost their bike.

  • avatar
    narcoossee

    https://www.marketplace.org/2017/12/27/economy/subprime-loan-market-losing-its-appeal-lenders

    “…But it isn’t just Uber that’s having trouble with sub-prime lending. Defaults are rising in the auto industry. And even banks that lend money for a variety of loans are moving away from the subprime market and focusing on more affluent customers.”

  • avatar
    Jerome10

    I guess I’m just way off on the “be responsible” and “think first” spectrum. The company may be a POS but they’d have ZERO business if people didn’t sign their paperwork. And I’m willing to bet all the costs, rates, payment info, interest pairs etc is all right there on the paperwork, by law.

    Jack-
    Love your story telling. I’ve always been intrigued by the guys doing repo…. Any chance in your life experiences you got some interesting stories to tell in that department?

    • 0 avatar
      Jack Baruth

      Yes but they are all secondhand stories. I’ve never repossessed anything bigger than a bicycle!

      • 0 avatar
        carguy67

        “Yes but they are all secondhand stories. I’ve never repossessed anything bigger than a bicycle!”

        I got one. I used to work as a rod man for a civil engineering/survey company. A former partner of the company bought a Lotus Esprit on the company ledger and when he was removed from the company a couple of us grunts were sent to retrieve it. We got it up on a flatbed trailer that I backed-up to it–no small feat as I’ve never wrangled a trailer before–at the culprit’s then place of work. Of course, a couple of us grunts had to take the Lotus out for a spin in the country. The brittle fuel lines leaked and the engine caught fire miles from anywhere; we put the fire out with dirt and had to hoof it a couple miles to a farmhouse to call our bosses. Somehow, we managed to keep our jobs (probably because no one else wanted to work at that second-rate company). I felt both exhilarated and grimy over the whole episode.

    • 0 avatar
      bullnuke

      Try you,tube*com/channel/UCQ7hVAuM_Bf4IWX2GwTqiqA to see a repo outfit in action in several situations. Many sad, several well deserved, and some a bit tense. The star of the show seems a good guy who explains the job well.

    • 0 avatar
      hreardon

      When I was selling cars in the late ’90s the finance department had little trouble putting people into 17% notes. By law the interest rate is in 40-bajillion-size-font and the GM told the finance department that they needed to very clearly highlight and point out the interest rate and terms so that there was zero confusion. Credit report and credit score disclosure was required as well.

      This was primarily to make sure people did not come back with a news crew trying to blast them on the 6:00 news as trying to take advantage of customers.

      “Want” overrides “Common sense” almost all the time.

      • 0 avatar
        87 Morgan

        hreardon..You are correct. The standard bank note has the APR in large bold print.

        I find the lack of dealer basking on this thread to be refreshing. The dealership and/or the finance department are NOT financial planners for their customers, nor should they be. No bank will accept a bank note written at 17% when the borrower qualifies for 8%. Those days are over.

        Therefore, those that are signing up for 17% or higher are receiving the interest rate they qualify for. Interest rate is a measure of risk, and a 17% loan qualifier has already proven a lack of ability to make good financial decisions. I understand their are instances where unforeseen medical, bad luck factors in as well, but it is what it is.

        The dealership is no different than Nordstroms. You can buy nice clothes at Kohls for substantially less, but lots of poor folks shop at Nordstrom who have no business being inside the store but as long as their credit card approves they are welcome to stay.

        • 0 avatar
          hreardon

          @87Morgan –

          In addition, store credit cards tend to carry astronomical interest rates: Wal-Mart is 23.9%, Best Buy is 26%.

          For many consumers that $1,000 refrigerator ends up costing them an additional 26%, assuming they pay it off within 12 months. Many don’t. This is one of the reasons why credit card companies are now required to post what you end up paying if you only make the minimum monthly. While I hope that disclaimer opens the eyes of a lot of consumers, I doubt that it does for many.

          Like automakers, retailers have discovered that consumer credit is the best way to make a profit in a world where there is oversupply.

          • 0 avatar
            MWolf

            Some regular old Visa/Mastercards have variable interest rates that swing between the low to mid 20’s….even with credit scores in the 730 to 750 range. The store cards, unless you have EXTREMELY good credit (requires high average age of open accounts, 100% on time payments, low to no hard inquiries, no collections or deragatory marks, an excellent debt to income ratio, and extremely low credit utilization), the store cards are competitive with their interest for most consumers.

            Read those offers -carefully-!

  • avatar
    pwrwrench

    I was fortunate that my father impressed on me the importance of thinking things through and not immediately jumping at something. He wanted the schools to have classes that taught about the financial system, how to open a bank account, write a check, take out a loan and what those things meant. He suggested that at PTA meetings, more than fifty years ago, and was told to get lost. Probably by the real estate agents in the group.
    So I stayed out of, sometimes by luck, the bigger scams of the last 3 decades.
    As mentioned in the OP there are plenty of greedy people who will take advantage of those that did not get any financial education. Maybe their parents were absent or did not know much.
    As others have mentioned, this is almost identical to the scams that led to the “financial crisis” of 2006 to ? (ain’t over yet)
    Matt Taibbi has written extensively about this in Rolling Stone. How the same properties/houses were sold, repo’ed, and sold again (and again). With the same companies writing the mortgages and collecting the commissions.
    The companies claiming to “hold the note” were allowed to come into court with obviously faked documents, wrong dates, addresses, and so on. If the buyer did not show up it was allowed to go through. In the few cases where they did appear with an attorney judges usually let the plaintiff’s attorney come back later with a “corrected” document.
    This goes way beyond “Robo-signing”. As soon as the MERS (Mortgage Electronic Registration Systems) was allowed in most states it was over for most people. A “document” (mortgage note) could be conjured up out of a computer at the speed of light.
    It got to the point where people could not buy a property because it could not be established who actually owned it.
    Yep I’m certain that some “signed up for houses or cars they could not afford”, however when the sales person, smiling, tells them “Just sign here, it will be great!” some can’t resist. Sometimes it works out, the “raise”, that the sales person wrote on the loan app, actually happens or the house gets sold before the bubble pops. Obviously that was the smaller percentage or this discussion would not be happening.
    Anyway one of Taibbi’s articles:
    https://www.rollingstone.com/politics/news/lurid-subprime-scams-unveiled-in-long-running-fraud-trial-20131212

    • 0 avatar
      brettc

      My parents and my grandfather (dad’s dad) were notoriously cheap and tried to install in their kids not to buy things until we had the money to pay for said things outright. It’s a little different with a car since most people have to finance them, but the same concept applies – don’t overextend yourself.

      As a result of their teachings, I bought a dump of a house 12 years ago and have put a lot of sweat equity into it and don’t owe a lot on it at the moment.

      I also won the car lottery with VW’s scandal. I’ll be driving a car for about 6 years at a total cost of about $9000, then I’ll get about 22K back to buy something else. Several people have asked why I didn’t have VW buy it back sooner. The answer is that it doesn’t make sense financially to dump it until the end of the buyback window.

      No one is forced into buying an overpriced house or buying a brand new expensive vehicle to keep up appearances like Hyacinth Bucket. There are ways to live cheaply. It might not look as good to judgy people, but those people can pound sand.

  • avatar
    denster2u

    Subprime auto loans are the next financial bubble waiting to burst. The same “financial instruments” that plagued the mortgage industry are now rampant in auto financing. The current pace of 17 million+ new vehicle sales in the US is unsustainable, and is already stretched to the max with manufacturer incentives and 72 month+ subprime loans from lenders. How many people buying $50K+ crossovers, SUVs, and pickups can actually afford them, based on net annual household disposable income? Much like housing, the automotive aspirations of a large percentage of buyers far exceed actual needs and financial means (or rationale). Vehicles are one of the most emotional and expensive purchases we can make, and the automotive marketing machine thrives on maximizing profits through emotional appeal to buyers. This is readily apparent in the “me too” craze of overpriced crossover vehicles, for which Americans have an insatiable appetite, paying 20%+ premium over less desirable sedan counterparts, sharing the same platform and a large percentage of components.

    • 0 avatar
      hreardon

      @denster2u –

      The default rate for auto loans is low at about 2.4%, and the Experian auto loan default index has been pretty steady for the past few years:

      http://us.spindices.com/indices/specialty/sp-experian-auto-default-index

      Yes, there is a lot of debt and the rate is increasing, but there are a few MAJOR differences between this and what happened with housing:

      1. You cannot take out sigificant equity from automobiles as you can from homes
      2. Major banks have already divested themselves of a substantial percentage of their subprime loans
      3. Consumers have time and again demonstrated that they will make auto loan payments before other loan payments.

      The systemic risk is several levels of magnitude less than the housing market.

      HOWEVER, there is legitimate concern that the subprime market will end up depressing long term new car sales as people are pushed into longer term, higher interest, rolled-over negative equity solutions. Will it destroy the auto market? No, but it will have a negative effect upon volume.

  • avatar
    FreedMike

    Disgusting.

    In the end, if we want to truly do something about car-loan vultures, then we need to expand access to transit.

    Cue the “but, but, but poor people are irresponsible and they’ll spend the tax money I pay on IPhones” retort. And that’s correct in many cases. But I’d be willing to bet that for every case where some moron finances a 10-year-old S-class Benz so he can just look cool, there are two cases of people buying simple, basic transportation because they have no workable alternatives and the bus system can’t get them where they need to go to find work.

    In fact, it wouldn’t shock me if a great deal of the money behind the anti-transit lobbies came from these bottom feeder lenders.

    • 0 avatar

      Here’s How To Look Rich With a $11,000 Maserati Quattroporte.

      3M views

      • 0 avatar
        FreedMike

        We have Doug DeMuro to thank for that, I suppose.

        And I’m sure that’s a thing for quite a few people who take out one of these God-awful loans. But I’m betting most would just want to look employable in a $10,000 Fusion.

        • 0 avatar
          markf

          “In the end, if we want to truly do something about car-loan vultures, then we need to expand access to transit.”

          Yes, let’s build all the poor folks new subways, in NY it only costs 1.5-3.5 billion per mile for new track. Then charge ’em a buck fifty to ride, that is sustainable…..

          “The recently completed Second Avenue subway on Manhattan’s Upper East Side and the 2015 extension of the No. 7 line to Hudson Yards also cost far above average, at $2.5 billion and $1.5 billion per mile, respectively.”

          https://mobile.nytimes.com/2017/12/28/nyregion/new-york-subway-construction-costs.html?action=click&module=Top%20Stories&pgtype=Homepage

          • 0 avatar
            FreedMike

            Buses don’t cost billions of dollars.

            Here in Denver, there are parts of the metro area that are very difficult, or downright impossible, to access via public transit. Not coincidentally, these areas have LOTS of entry level jobs available in them.

            But whenever the transit agency talks about expanding the system, the usual suspects get their low-tax panties in a wad.

    • 0 avatar
      markf

      “In the end, if we want to truly do something about car-loan vultures, then we need to expand access to transit.”

      So the taxpayer needs to subsidize their transportation? Public transport for all is a Liberal pipe dream.

      Of course I would be in favor of private bus companies charging actual market rates, instead of subsidized rates while transit workers makes $$$$$$

      ” Subway workers now make an average of $170,000 annually in salary, overtime and benefits, according to a Times analysis of data compiled by the federal Department of Transportation. That is far more than in any other American transit system; the average in cities like Boston, Chicago, Los Angeles and Washington is about $100,000 in total compensation annually.

      The pay for managers is even more extraordinary. The nearly 2,500 people who work in New York subway administration make, on average, $280,000 in salary, overtime and benefits. The average elsewhere is $115,000″

      https://www.nytimes.com/2017/11/18/nyregion/new-york-subway-system-failure-delays.html?ref=todayspaper&_r=0

      • 0 avatar
        markf

        “But whenever the transit agency talks about expanding the system, the usual suspects get their low-tax panties in a wad.”

        You are free to send as much of your money to State, Local and the Federal government as you like. You have no right to mine.

        Or, the buses can be privatized (the way they used to be) and the government can get out of the businesses of subsidizing transportation.

  • avatar
    dwford

    Real lenders may decline the truly credit challenged, forcing them into CACC types of situations, but where credit fraud really occurs is in the mid credit score range. In this range banks start waiving proof of income requirements, etc, and finance managers can easily fudge the credit application to get higher loan amounts approved. Buyers turn a blind eye because they want the vehicle, and just sign sign sign all the paperwork.

    Willful fraud on the finance manager’s part, willful ignorance on the buyer’s part.

    • 0 avatar
      FreedMike

      The problem in cases like this, then, is not the dealer or finance manager who doesn’t collect paperwork, but the lender that doesn’t require it in the first place. When lenders use insufficient underwriting standards, this is the kind of abuse that happens.

      And if the customer willingly allows the finance manager to inflate his income figures, then the fraud is on the borrower’s part as well.

      The solution to this is to have solid underwriting standards in the first place.

    • 0 avatar
      hreardon

      Been a while since I’ve been in the business, but dwford, I’m pretty certain that most reputable finance corps require proof of income and ‘fudging’ of loan docs can land you into some serious-post-financial-crisis trouble.

      No doubt there are some real shady ones out there, but I suspect that the level of fraud you are suggesting really isn’t that common today.

  • avatar
    NeilM

    There will always be poor people, uneducated people, and those who make poor decisions. Sometimes all three at once.

    The question is, do we accept them as legitimate prey for the carnivorous elements of the financial industry? If so then we might as well just go all the way to Soylent Green.

  • avatar
    dal20402

    “Nor am I prepared to say that what they do should be illegal.”

    Of course it should.

    At this point in the development of society, it’s just not realistic to expect ordinary citizens to understand every wrinkle and detail in a complicated market. Regulation should protect people from outright predatory practices such as those displayed by this “lender.”

    That’s not to say that all subprime lending should be banned; much of it provides a valuable service. But there should be a ban on loans that the borrower has little realistic chance of repaying, and the existing rules that prohibit deceiving borrowers about loan terms need to be much better enforced.

  • avatar
    tonycd

    “in the end, Sanders got outvoted, plain and simple.”

    Plain and simple, we don’t know that. Even beyond the now-proven collusion between her campaign and the Democratic National Committee to funnel funds and institutional support to Hillary and away from Sanders, there were numerous voting irregularities in Hillary’s favor in numerous states, especially in caucuses (notoriously easy for party leaders to manipulate) but also in states with primary elections, including the nation’s largest in California. (This also is apart from the Associated Press’s inaccurate report the day before the primary that Clinton had just clinched the nomination, a story suspiciously timed as a seeming deterrent to Sanders voters.)

    The reason all this still matters is that there are people in positions of power still trying to sell the storyline that Bernie lost the nominating process fair and square. It not only wasn’t fair and square, it isn’t even clearly evident that 50 accurate state vote counts would reveal that he actually lost. In 2020, he very well may run again. The American people’s opportunity to have the candidate of their choice will depend on their willingness to diligently sift through this kind of deception.

    • 0 avatar
      dal20402

      This is tinfoil hattery on the level of Trump’s claim that 3 million illegal immigrants voted for him. Hillary won the primary campaign. It wasn’t close.

      Caucuses generally favored Bernie. (Here in Washington, which has both a caucus and a primary, Bernie won the caucus easily while Hillary won the primary.) In primaries, “voting irregularities,” as almost always in the US, would have been a rounding error to a rounding error.

      And stuff like that just distracts from the much more relevant question of what the party’s role should be, and whether it’s reasonable for the party to put a thumb on the scale for a candidate (as the Democratic Party clearly did for Hillary), during the primary process.

      Bernie should not run again in 2020. He would be 79 on taking office and 87 at the end of a second term. The presidency is a position that imposes enormous physical demands, and people over 70 have a very poor record in it. Elizabeth Warren, as much as I love her (she was my best law school professor), is also bordering on too old. The social-democratic wing of the party should find a younger face to square off against the center-left candidates in their 50s (Harris, Gillibrand, Booker).

      • 0 avatar
        markf

        “This is tinfoil hattery on the level of Trump’s claim that 3 million illegal immigrants voted for him”

        Really, Trump claimed 3 million illegals voted for him. Maybe your tinfoil hat needs adjusting; esp. if you thin Gillibrand, Harris and Booker are “Center Left”

        • 0 avatar
          30-mile fetch

          Looks like a simple typo from dal. The President claimed that Clinton’s 3 million vote victory in the popular vote was due entirely to illegals.

          Which is horsesh*t as usual.

        • 0 avatar
          dal20402

          I typed “for.” I meant “against.” I realized it just too late to edit.

          Gillibrand and Harris are classic center-left. In any industralized country except the USA, Booker would be center-right. But we don’t do center-right here, so center-right people have to fit themselves awkwardly into a leftish party.

          If you want to see what a non-center leftist with a national profile looks like, go look up Nina Turner.

  • avatar
    markf

    Cory Booker in 2013:

    “And for his part, he’s adamant that “there’s nothing in that realm of progressive politics where you won’t find me.” ”

    Spoken like a true center-right politician. Your Tin foil hat may need yet more adjusting

    https://www.salon.com/2013/07/09/do_liberals_know_cory_booker/

    • 0 avatar
      dal20402

      The reason he had to say something like that in the first place was because he got vilified by most of the Democratic Party after earlier comments defending both private equity and banks.

      The episode just showed how awkwardly he fits into the Democratic Party. He’s an Eisenhower Republican by temperament, but the Republican Party today would consider Eisenhower a globalist cuck.

  • avatar
    civicjohn

    I can’t believe that no one has bothered to mention Freddie Mac and Fannie Mae and their role in the mortgage bubble. Now the Feds have the student loan business in hand while it’s approaching $1trillion, when will we hear the clarion call to “forgive” them?

  • avatar

    States used to, most still do, have usury laws. Unfortunately, the Supreme Court allowed, in the interests of interstate commerce, full faith and credit for deals in other states with higher rates. The race to the bottom commenced…why do you think South Dakota is a center of credit cards ? The 18% rate is designed so you end up servicing the interest engine…not paying down.

    It is immoral, at some point, to charge high interest to non sophisticated parties…..but in the name of freedom, it’s OK now.

  • avatar
    danio3834

    “Wait 45 minutes,” she said, “then call him back and tell him Tina says to run it by GE Capital.”

    Bahaha. My favorite type of response to traitor dealers.

    I loved it when a stretched goodwill request would come in and a little digging revealed they sold some garbage 3rd party warranty on it. “Tell him to go ask Lubrico, Global, Tri Cor etc.” Hahaha

  • avatar
    PandaBear

    It is expensive to be poor. Sometimes you want to get from point A to point B in the most cost effective path but you are not qualified for it, sometimes it is just stupidity.

    The problem I see is if there are better loans or cars out there for the client but was not given the choice (i.e. used Corolla loan, or non subprime loan when clients are qualified for prime) then it becomes unethical. Still people should learn to say no to impulse purchases when deals doesn’t make sense, but saying no to ourselves seems to be something we as a human race are poor at.


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