Also I’m not sure you’re correct about the ownership and the lawsuits. Sure you can sue anyone for anything but why would this be any different from me leasing a car from ford and the same thing happening? That doesn’t seem to have been an issue for automakers so far…
For the record, this sounds like a dystopian nightmare to me. I’m not in favor of the concept.
Ford has a huge financing arm. And it will probably get bigger as interest rates rise, because they have more room to offer lower than market interest rates as a hidden discount without dropping the purchase price.
[1] https://www.ford.com/finance/investor-center/ford-interest-a...
I hear this meme a lot but is it actually true? By most benchmarks cars from the last 10 years are more reliable than those from two decades ago.
I don't know about Ford, so they might still be ok, or at least better than GM. I don't want to pay $40K+ to find out though.
I expect to be able to drive vehicles without major issues for about 10 years. I've done this in the past with GM vehicles, but after 2007, the two I owned had significant issues all the ones I purchased prior did not. I put significantly less than 10k miles a year on my vehicles.
I'm not a lawyer at all, however much of my work on privacy and security has been about reconciling technology architecture and implementations with privacy and other laws and regulations, and security architecture is about allocating risk between counterparties in a technology solution, so from that view, this could be reasonably interpreted as a predatory technology.
They are, in all other respects, the same as a traditional loan-based purchase.
Nothing prevents that from happening now, though. I'm also uncertain how reclaiming the collateral for the loan is any different in this scenario.
Granted, I think this is extraordinarily gross and consumer-hostile. Aren't there myriad of options on the table for reclaiming the vehicle? How often does someone "get away" with keeping a car, anyway? That's what the repossession industry exists for.
It seems like a good idea for stolen autos (at least until the car can be modded to remove the ability, so recently stolen autos). As long as there are enough checks to ensure that only the owner (or law enforcement with a warrant) can repossess the car. There just has to also be a requirement that the lease holder can't lawfully repossess without a court judgement.
Is it not correct that the lending entity you use to purchase a vehicle is the party that legally owns it? The borrower has possession and right to use the vehicle, but the lender holds the title. That's why you get the title transferred over to your name once the balance of the load is repaid.
The reason they do that is because a lien gives them the ability to, within a particular legal framework, get ownership of the car if you don't pay your loan, prevent the title from being transferred to someone they don't trust, etc. It's basically just risk mitigation.
The title stays with the lender until all the payments are made per the loan agreement. I would not say the vehicle legally belongs to a borrower until they have possession of the title.
> The reason we have laws is so that people have recourse to principle, whereas when you implement something like this in hardware (a car), it's dystopian vigilantism.
The legal system is costly to use. Reducing the costs to repossess collateral would reduce borrowing costs, and ultimately help borrowers with lower borrowing costs because there is less expense towards repossession.
This article is something like 5-10 years behind reality: Right now subprime auto loans are mostly enforced with GPS trackers that buyers are usually not made properly aware of, or even worse, tricked into paying for as an add-on pitched as being for their own benefit.
https://www.nytimes.com/2017/02/19/business/dealbook/gps-dev...
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There are entire businesses built on selling poor people cars at truly insane interest rates, on payments they clearly can't afford, repossessing the cars on the cheap with GPS trackers, then selling then to the next poor person with bad credit.
This grift isn't new, but cheap GPS trackers and license scanners reduced the cost per repossession in a way that enabled these places to be signficantly more brazen about it.
Unfortunately the two prevailing takes I see on this are "they're subprime for a reason" as if they deserve it, and "well at least someone is still giving them a chance, you need a car in this country" (and of course some well meaning but ill informed people think you can just take public transport in every part of the country)
The reality is this is worse than nothing in many cases. Buy here, pay here have people pay more frequently so that they can repo a car within days not months of someone buying them. The process isn't free either, it's disruptive, and they'll continue to leech off the owner in collections.
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Overall it feels like a classic case of short sightedness from society. Saying we should directly subsidized subprime people's access to affordable loans and cars would be a non-starter: It sounds like some bleeding heart charity case making the responsible pay for the irresponsible.
But then we'll all indirectly fund a much worse version of that when subprime auto loans start to implode (like they're probably already starting to with the interest rate hikes...) and we're all paying to pick up the pieces in multiple ways. If the bottom falls out the car market, well right now even middle class families are taking loans with insane terms that leave them underwater in a good market. The pain will trickle up and out from just subprime lenders and cars specifically.
The recovery rates for subprime auto deals are historically around 50%
https://www.fitchratings.com/research/structured-finance/soa...
They do need a few people who pay off the whole car. These are the case studies they use to shout how great they are for taking a chance on someone who turned their life around.
For example here's NY state
If you've already paid more than 60 percent of the amount you owe when the car is repossessed, the creditor must auction it within 90 days. During this time, you can still get your car back, says the New York City Bar Legal Referral Service. You have up until the car is actually sold or leased to settle with the lender. You might have to pay the past due amounts, but often you'll be asked to pay the entire loan balance.
After the auction, the creditor can apply the proceeds toward fees and expenses relating to the repossession and the unpaid balance on the loan. The lender must give you a completed an Affirmation of Repossession and Bill of Sale. After all expenses are paid, you're entitled to the balance of the proceeds.
https://www.sapling.com/6669128/new-state-car-repossession-l...
The trick is to lend me $100 on a $40 dollar car that I cannot sell for $70. Nevermind the fact that in most states I can't sell the car for any amount as the dealership owns the lien.
> There are strict rules what you can do state by state, but generally you can't repossess something worth more than the outstanding balance and keep the rest as a profit
A lot of articles have been written about scammy "Buy Here, Pay Here" autosales that exist despite the strict rules. Since the dealership is financing the car, they can tweak the initial balance and monthly payments to their liking, while following the letter of the law but hitting the repo quota on the same '97 Honda Civic.
And the car isn’t the only thing being sold, there might be a bundled reconditioning fee, a GPS installation fee, a documentation fee, a service fee, origination fee, nitrogen fee, etc. So when they sell the car again for the same $2000 plus fees that you bought it for, they’ll happily deduct that $2000 from the $3000 you still owe.
Since you mentioned subprime loans, to clarify: this is about the level below that, for people that can’t qualify for a loan from any real bank, even Santander.
https://www.fitchratings.com/structured-finance/abs/auto-ind...
As soon as the government assistance I'm advocating dried back up we skyrocketed back to historical highs of subprime delinquency.
And notice how when graphed together, right on the timeframe I describe of 5-10, you see a massive divergence between subprime and prime trends even in your own article. Recovery rates tell you percentages, not absolute scale. (graph is a stunning representation of our current K-shaped recovery btw)
With cheaper repossessions the scale was what increased, and that's what Fitch is referring to with record performance.
We gave more people than ever who couldn't afford loans loans, and so while the relative rate of recovery didn't change, delinquency went insane, and is gearing up to get even more insane with the interest rate hikes.
> People who give out car loans want you to pay back the loan.
I can't tell if this is just a naive or at least uninformed take. At a high enough level the financial system wants people to pay back loans... but that's not what's being discussed here.
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There are dealers who want buyers to fail to pay. They're additionally enabled by both GPS trackers and license scanners to be even more efficient in their grift.
Additionally, you accidentally exposed an amazing example of what I described in terms of "we will subsidize it either way"
We don't provide a direct form of assistance specific to cars... but we did pay individuals to keep them afloat during the pandemic. They then had to take that money and pay subprime lenders to keep cars with exorbitant interest fees for longer, driving record profitability for the subprime market.
Now interest rates are spiking, those people are losing their cars. They're in a more desperate situation than ever, with less assistance then when interest rates were better. Used car prices fell, but not enough to cover all the ground they gained during the heat of the pandemic.
It's like this country just lets looming crisis walk up face to face without every trying to change course lest we seem like communists. To me this shouldn't even be a partisan issue, we can enable a smaller need for government intervention in the next economic slump by just not donating money to these lenders
No offense but i don't think you know what you're talking about. Where are you getting this information? Talk to someone in the industry
> So you're saying car repossessions can yield a profit?
Yes! You don't understand how Buy-Here Pay-Here works if you're going on about auctions.
Here in CA it's been legally defined specifically to try and help protect a vulnerable population, but the MO is the same wherever you go:
- 90% of all their loans are kept in-house for 90 days
- The dealer does not primarily deal with new cars
That means if they repo the car within 90 days, they're out of pocket exactly the cost of the recovery and the depreciation... so they just lean heavily on cars that are at the end of their useful lives, then ask for just enough down to cover the repo and a sliver of profit.
They let the fish go, and hope the inevitable* happens within 90 days, so they take the car back and sell the account to collections for a few extra pennies. And obviously it's the junkiest of junk debt so it's not worth much, but there are bottom feeding collection agencies that will use barely legal tactics to try and squeeze just a tiny bit of extra blood from the stone.
* To understand how far these places are willing to go: CA needed to pass a law to prevent them from requiring in person payments and force them to disclose the trackers (most states don't require this).
That's because they'd require all payments to be made on-site, then have recovery waiting for the end of business to take cars. Can't get there because of work? Repo'd. Can't get there because of a court date? Repo'd. Can't get there because the POS they sold you isn't working? Repo'd and patched up just enough to hobble along enough for the next desperate buyer.
And to be clear, CA is in the minority in preventing that, this is still happening across the nation at a scale that's never been seen before.
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To be even more efficient, they're starting to take on more of the collections processes themselves, often with disastrous results: https://www.consumerfinance.gov/about-us/newsroom/cfpb-takes...
https://www.autoremarketing.com/bhph/three-ways-improve-coll...
> After five years, Fransen transitioned from a third-party collection environment to a buy-here, pay-here finance company and specialized in developing a successful in-house recovery department.
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I mean seriously, what do you think the loss in value on a 150k mile 2005 Sentra with a mean belt squeal and an extra 1000 miles on it since the last repo is? They're dealing with desperate customers at the bottom of their list of choices so it's not even factored in into the price.
The only "wrench" in this is if someone manages to keep the car long enough that they can't keep the loan in-house... but by the time that happens they've already made their money: They didn't sell the car at a good price to a desperate buyer, the loan has matured so it's a little more, and it's not their problem if it needs to be repo'd.
Overall this is a discussion about the intersection of multiple massive industries that each do enough revenue to form their own countries. No offense, but you definitely don't know what you're talking about if you think you can reduce it to just needing to be "in the industry".
Vehicles that get absolutely trashed are a loss, but that's why the lenders want every repo to be a surprise to the creditor.
These people are forced into owning cars by a reality of our country that's not changing soon: we're pretty damn car-centric. But they're being taken advantage by a system that uses unethical and even illegal tactics to squeeze them between a rock and a hard place.
The government can either do something upfront and probably save a ton of money while helping lift a lot of people out of a predatory cycle... or it can pick up the pieces after the house of cards comes crashing down.
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The difference is that if it does something upfront people will claim it's evil socialist government charity to lure irresponsible people into voting. Never mind we did give these people checks to float which were often promptly turned in to these scum... leading to the lowest delinquency rate in the history of subprime ABS ratings (and record subprime loan performance!)
Instead the government will do nothing until the house of card falls, leaving a massive wake of destruction. And then the government will throw around cash to help out the various players across the wide wide range of markets that will be hit by the splash damage.
Their lobbyists will be out in full force assuring us this is what's best for the American people. The American people will be instructed that it was an necessary intervention to save the market.
Infusing overleveraged corporations with cash will benefit some very wealthy people (but don't worry it'll trickle down). And then we'll repeat this in 10-20 years.
They're just selling it to them, the individual is looking at the payments, they knows it's gonna be a stretch and they are rolling the dice hoping they can afford it.
The relationship between the individual and the dealership doesn't sound very exploitative to me.
I asked you not do a simple thing: reply to what was said, not some non-sensical aberration of it, and you've failed twice. Why is such a simple task so difficult for you?
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At the end of the day the dealerships are selling cars that are lemons.
The dealerships are requiring in-person on site payments.
The dealerships are selling cars well above FMV so that they can hold the loans in-house in a preferable structure that enables the rapid fire cycling of these cars.
Many dealerships are failing to disclose GPS trackers.
Some have gone as far as harassing buyers and their social circle after repos to try and get more money back.
I can't tell if you're being facetious at this point if you seriously think Buy-Here Pay-Here is not an exploitative grift. You don't get to double the profit margin of the people servicing prime customers with fair tactics: http://www.leginfo.ca.gov/pub/11-12/bill/sen/sb_0951-1000/sb...
This varies a lot by state. A lot (most?) states the title absolutely goes to the purchaser but it has a lien attached that gives the lender rights of repossession.
That said, physical possession of the paper doesn't really matter to ownership---as electronic retention demonstrates. The owner listed on the title is the owner regardless of who has the paper, and the DMV's electronic records are far more important than the paper certificate (you can just get the DMV to print a new certificate from their records, but of course they'll charge a hefty fee and policy usually prevents doing so when there's a lien).
The physical possession issue is just around the ability to fake a lien release signature and sell the vehicle. For the same reason some buyers won't accept a title with a signed-off lien and want a new "clean" title printed by the DMV first, but others will just verify the sign-off. Dealers usually have direct access to query DMV records and can check whether or not a lien sign-off is genuine that way (relase of lien is reported to the DMV by the lienholder), but private party purchasers don't have such an easy way to do this and are more vulnerable to this kind of fraud. Multi-sale title certificates that have sales logged on the back are also regarded as suspicious by a lot of buyers, and they'll want a new clean one.
That said, I think the GP here is making a big assumption about how courts would interpret the situation. A lienholder has the right to repossess the vehicle as is, by sending a tow truck. Whether or not a court would interpret "remote repossession" as somehow changing the fundamental nature of ownership is an open question and I'm pretty skeptical. It's already not that uncommon for lienholders to install GPS tracking devices with fuel pump cutoff, in which case they have a more limited degree of remote control of the vehicle, and I've never heard of anyone thinking this changes the fundamental owner-lienholder relationship. I just don't think this idea about transfer of liability really holds any water.
If you purchase it, you get a title with a lien, and you need to have it reissued, after the car is paid.
> The title stays with the lender until all the payments are made per the loan agreement. I would not say the vehicle legally belongs to a borrower until they have possession of the title.
Maybe the confusion comes from the meaning of "owning". There are essentially three parts to ownership: the right to sell, to rent, and to use. A full owner has all three, but there are situation where they are distinct and the "owner" may be different depending on which aspect you consider. So when usage is considered, the borrower is the owner, the lender can't get into the car and drive, but when sales are considered, the lender can sell the car and get money from it, the borrower can't (at least not before the loan is fully paid).
Costs to borrowers could be reduced, which sounds like a nice silver lining to what most people would consider an anti-feature, but there's nothing that says the savings will necessarily be passed on to borrowers versus retained by the lenders instead.
In a country with very high firearm ownership it's actually dangerous[0]. From a quick Google search violence breaks out pretty often[2][3] in these circumstances.
[0] - https://www.nolo.com/legal-encyclopedia/car-repossession-law...
[1] - https://www.youtube.com/watch?v=ti0NHC6oVnk
[2] - https://www.jacksonville.com/story/news/crime/2011/03/02/rep...
[3] - https://www.fox4news.com/news/repo-man-shot-while-trying-to-...
FTFY.
Might need Steve Lehto to weigh-in on how much "ownership" there is in America.
This is not true - In my state you don't get mailed the title to the car until after the loan is paid.
No surprise the dark tactic is spreading.
Regular licenses for software you do "buy" can be retracted but that rarely happens in practice.
If they don't have the right to do that, it's theft, either way around.
When you finance a car, the vehicle becomes collateral for a loan, but it belongs to you. A technology like this means that the vehicle still belongs to Ford, which means if something goes wrong with it, or if you get sciatica from their shitty seats, you can class action sue them into oblivion.
The reason we have laws is so that people have recourse to principle, whereas when you implement something like this in hardware (a car), it's dystopian vigilantism. I realize the largest future growth market for cars is in countries without reliable legal systems, and whose evolving governments will not hamper themselves the way the US did by guaranteeing individual freedoms, but this is why discourse about tech is important, as for every innovation, there's 100 scumbags like this inventor looking to leverage it to exploit people.