******************** POSTING RULES & NOTES ********************
#1 YOU MUST clip all extraneous text when replying to a message.
#2 This mail-list, like most, is publicly & permanently archived.
#3 Subscribe and post under an alias if #2 is a concern.
*****************************************************************
NY Times, June 19 2017
The Car Was Repossessed, but the Debt Remains
By JESSICA SILVER-GREENBERG and MICHAEL CORKERY
Unable to recover the balance of loans by repossessing and reselling the
cars of owners who default, some subprime lenders are aggressively suing
the borrowers to collect what remains. Credit Spencer Platt/Getty Images
More than a decade after Yvette Harris’s 1997 Mitsubishi was
repossessed, she is still paying off her car loan.
She has no choice. Her auto lender took her to court and won the right
to seize a portion of her income to cover her debt. The lender has so
far been able to garnish $4,133 from her paychecks — a drain that at one
point forced Ms. Harris, a single mother who lives in the Bronx, to go
on public assistance to support her two sons.
“How am I still paying for a car I don’t have?” she asked.
For millions of Americans like Ms. Harris who have shaky credit and had
to turn to subprime auto loans with high interest rates and hefty fees
to buy a car, there is no getting out.
Many of these auto loans, it turns out, have a habit of haunting people
long after their cars have been repossessed.
The reason: Unable to recover the balance of the loans by repossessing
and reselling the cars, some subprime lenders are aggressively suing
borrowers to collect what remains — even 13 years later.
Ms. Harris’s predicament goes a long way toward explaining how lenders,
working hand in hand with auto dealers, have made billions of dollars
extending high-interest loans to Americans on the financial margins.
These are people desperate enough to take on thousands of dollars of
debt at interest rates as high as 24 percent for one simple reason:
Without a car, they have no way to get to work or to doctors.
A Booming Market for Subprime Auto Loans
Auto loans to people with shaky credit are bundled and sold as
securities. Such securitizations grew sharply from 2010 through 2015,
but fell off last year, as lending practices became tighter.
With their low credit scores, buying or leasing a new car is not an
option. And when all the interest and fees of a subprime loan are added
up, even a used car with mechanical defects and many miles on the
odometer can end up costing more than a new car.
Subprime lenders are willing to take a chance on these risky borrowers
because when they default, the lenders can repossess their cars and
persuade judges in 46 states to give them the power to seize borrowers’
paychecks to cover the balance of the car loan.
Now, with defaults rising, federal banking regulators and economists are
worried how the strain of these loans will spill over into the broader
economy.
For low-income Americans, the fallout could, in some ways, be worse than
the mortgage crisis.
With mortgages, people could turn in the keys to their house and walk
away. But with auto debt, there is increasingly no exit. Repossession,
rather than being the end, is just the beginning.
“Low-income earners are shackled to this debt,” said Shanna Tallarico, a
consumer lawyer with the New York Legal Assistance Group.
There are no national tallies of how many borrowers face the collection
lawsuits, known within the industry as deficiency cases. But state
records show that the courts are becoming flooded with such lawsuits.
For example, the large subprime lender Credit Acceptance has filed more
than 17,000 lawsuits against borrowers in New York alone since 2010,
court records show. And debt buyers — companies that scoop up huge
numbers of soured loans for pennies on the dollar — bring their own
cases, breathing new life into old bills.
Portfolio Recovery Associates, one of the nation’s largest debt buyers,
purchased about $30.2 million of auto deficiencies in the first quarter
of this year, up from $411,000 just a year earlier.
One of the people Credit Acceptance sued is Nagham Jawad, a refugee from
Iraq, who moved to Syracuse after her father was killed. Soon after
settling into her new home in 2009, Ms. Jawad took out a loan for $5,900
and bought a used car.
After only a few months on the road, the transmission on the 10-year-old
Chevy Tahoe gave out. The vehicle was in such bad shape that her lender
didn’t bother to repossess it when Ms. Jawad, 39, fell behind on payments.
“These are garbage cars sold at outrageous interest rates,” said her
lawyer, Gary J. Pieples, director of the consumer law clinic at the
Syracuse University College of Law.
The value of any car typically starts to decline the moment it leaves
the dealer’s lot. In the subprime market, however, the value of the cars
is often beside the point.
A dealership in Queens refused to cancel Theresa Robinson’s loan of
nearly $8,000 and give her a refund for a car that broke down days after
she drove it off the lot.
Instead, Ms. Robinson, a Staten Island resident who is physically
disabled and was desperate for a car to get to her doctors’
appointments, was told to pick a different car from the lot.
The second car she selected — a 2005 Chrysler Pacifica — eventually
broke down as well. Unable to afford the loan payments after sinking
thousands of dollars into repairs, Ms. Robinson defaulted.
Her subprime lender took her to court and won the right to garnish her
income from babysitting her grandson to cover her loan payments.
Ms. Robinson and her lawyer, Ms. Tallarico, are now fighting to get the
judgment overturned.
“Essentially, the dealers are not selling cars. They are selling bad
loans,” said Adam Taub, a lawyer in Detroit who has defended consumers
in hundreds of these cases.
Many lawyers assisting poor borrowers like Ms. Robinson say they learn
about the lawsuits only after a judge has issued a decision in favor of
the lender.
Most borrowers can’t afford lawyers and don’t show up to court to
challenge the lawsuits. That means the collectors win many cases,
transforming the debts into judgments they can use to garnish wages.
The lenders argue that they are just recouping through the courts what
they are legally owed. They also argue that subprime auto lending meets
an important need.
And collecting on the debt is a critical part of the business. The first
item on the quarterly earnings of Credit Acceptance, the large subprime
auto lender, is not the amount of loans it makes, but what it expects to
collect on the debt.
The company, for example, expects a 72 percent collection rate on loans
made in 2014 — the year that a used 2009 Volkswagen Tiguan was
repossessed from Nina Lysloff of Ypsilanti, Mich.
With all the interest and fees on her Credit Acceptance loan factored
in, the car ended up costing her $28,383. Ms. Lysloff could have bought
a brand-new Volkswagen Tiguan for $22,149, according to Kelley Blue Book.
When Ms. Lysloff fell behind, the trade-in value on the car was a
fraction of what she still owed. Last year, Credit Acceptance sued her
for $15,755.
The strategy at Credit Acceptance, which has a market value of $4.4
billion, is yielding big profits. The Michigan company said its return
on equity, a measure of profitability, was 31 percent last year — more
than four times Bank of America’s return.
Credit Acceptance did not respond to requests for comment.
Some of the people who got subprime loans lacked enough income to
qualify for any loan.
U.S. Bank is pursuing Tara Pearson for the $9,339 left after her 2011
Hyundai Accent was stolen and she could not pay the fee to get it from
the impound lot. When she purchased the car in 2015 at a dealership in
Winchester, Ky., Ms. Pearson said, she explained that her only income
was about $722 from Social Security.
Her loan application listed things differently. Her employer was
identified as “S.S.I.,” and her income was put at $2,750, court records
show.
Citing continuing litigation, U.S. Bank declined to comment about Ms.
Pearson.
Auto lending was one of the few types of credit that did not dry up
during the financial crisis. It now stands at more than $1.1 trillion.
Despite many signs that the market is overheating, securities tied to
the loans are so profitable — yielding twice as much as certain Treasury
securities — that they remain a sought-after investment on Wall Street.
“The dog keeps eating until its stomach explodes,” said Daniel Zwirn,
who runs Arena, a hedge fund that has avoided subprime auto investments.
Some lenders are pulling back from making new loans. Subprime auto
lending reached a 10-year low in the first quarter. But for those
borrowers already stuck with debt, there is no end in sight.
Ms. Harris, the single mother from the Bronx, said that even after her
wages had been garnished and she paid an additional $2,743 on her own,
her lender was still seeking to collect about $6,500.
“It’s been a nightmare,” she said.
_________________________________________________________
Full posting guidelines at: http://www.marxmail.org/sub.htm
Set your options at:
http://lists.csbs.utah.edu/options/marxism/archive%40mail-archive.com