Contact: Giselle Barry (Markey) 2022242742

Lawmaker calls on FTC to determine if auto financing practices are unfair or deceptive

 

Washington (October 23, 2013) - In a letter sent today to the Federal Trade Commission (FTC), Senator Edward J. Markey (DMass.) requested the Commission initiate an investigation of reports of car dealers using two potentially unfair or deceptive financing practices to sell cars to consumers. The two practices - secret dealer markups of interest rates and socalled 'yoyo' schemes - cause significant and unnecessary increases to automobile ownership costs, sometimes occurring without consumer knowledge and often harming those Americans with fewer resources who desperately rely on a car for their livelihoods. In his letter, Senator Markey asks the FTC if these practices qualify as unfair or deceptive trade practices in violation may of some of the federal laws within the Commission's jurisdiction. Additionally, under the DoddFrank Wall Street Reform Act of 2010, the Commission now has explicit authority to oversee these questionable practices and engage in enforcement action.

 

"Americans have a right to expect that a car dealer who promises a fair deal will keep that promise," said Senator Markey. "Consumers shouldn't get ripped off when they drive off the lot with a new car. We need to put an end to these unfair and damaging auto financing schemes and enforce action against any car dealers acting unlawfully. I will continue to monitor this important issue, and I look forward to learning more from the FTC." 

 

A copy of Senator Markey's letter to the FTC can be found HERE .

 

The first financing practice, dealer markup of interest rates, is a practice in which a dealer colludes with a third party lender to increase the interest rate on the buyer's car loan to a rate above the market rate; the dealer then keeps a portion of the rate increase as a form of "kickback." Many of these dealer markups occur in secret without the full knowledge of the car buyer.  The second practice, the socalled "yoyo scheme," involves a car dealer allowing a customer to drive off with a car as though the sale is complete. The dealer then requires the customer to return to the dealership days or weeks later and either agree to pay more than was previously agreed or surrender the car. 

 

These practices appear to be very profitable for car dealers. The car industry's own data from 2009 shows that average interest markup was almost 2.5 percentage points or $714 per customer - about half the average per sale profits made by the dealers. Consumers who financed their cars through a dealership will pay more than $25.8 billion in interest rate markups over the lives of their loans. Research has also shown that people with poor credit scores are subjected to even higher interest rate markups, making it even harder for those struggling economically to purchase their own vehicles.