Mayor Bill de Blasio, Department of Consumer Affairs Commissioner Lorelei Salas, Council Member Rafael Espinal, Jr., Chair of the Council Committee on Consumer Affairs, Council Member Dan Garodnick, Chair of the Council Committee on Economic Development, and Council Member Jumaane D. Williams today announced a package of legislation to combat predatory practices in the used car industry. The legislation would require used car dealerships, which DCA licenses, to post a Consumer Bill of Rights and disclose information about financing and pricing, provide all required notices to the consumer be in whatever language used to negotiate the contract, and provide consumers with the option to cancel their contract within two days of the sale. The legislation comes as a result of the public hearing hosted by Commissioner Salas and Council Member Espinal last October to explore predatory lending in the used car industry. DCA and Council Member Espinal also issued a report on the public hearing that includes findings and recommendations.
“Predatory business practices that take advantage of immigrants and other hard-working New Yorkers have no place in our city,” said Mayor Bill de Blasio. “When buying a used car, consumers will now have the information they need to avoid loan products that border on usury. We’re fighting to prevent unscrupulous dealers from peddling deceptive loan products, which too often target families that are already economically vulnerable. I fully support these bills that reinforce consumers’ rights and create transparency where it is badly needed.”
“For many New Yorkers having access to a car is a vital part of their economic stability,” said DCA Commissioner Lorelei Salas. “This legislation creates an additional layer of protection for these consumers, specifically those in low-income neighborhoods who have been disproportionally affected by these predatory practices. By requiring that used car dealerships must offer additional disclosures such as a consumer bill of rights, we can better ensure that hard-working New Yorkers are operating within a fair and transparent marketplace when it comes to purchasing a car.”
“Second hand auto dealers must understand that their cars can be used, but our city’s consumers must not be abused,” said NYC Council Member Rafael Espinal, Chair of the Committee on Consumer Affairs. “After hearing so many heart wrenching stories of deception and loss I am proud to announce robust legislation that will create transparency in the used auto industry and protect our consumers, particularly our most vulnerable New Yorker’s. A car should be a gateway to mobility and opportunity, not a cause of debt and hazard and I’m happy to take part in this collaborative effort to prevent future cases of abuse.”
“For too long, many of our city’s second hand auto dealerships have incorporated deception into their business model,” said Council Member Dan Garodnick. “The Consumer Bill of Rights is a crucial measure to protect purchasers of used cars. Second hand dealerships continue to prey on some of the most vulnerable New Yorkers and it’s long past time for this behavior to end.”
“I’m proud to co-sponsor a bill that will impact thousands of consumers, who are targets of predatory practices by unscrupulous used car salesmen,” said Council Member Jumaane D. Williams. “Low income and immigrant New Yorkers are especially affected by these deceptive practices. Making money off the back of struggling New Yorkers is shameful and is the responsibility of legislators to put an end to it.”
The proposed legislation would require used car dealerships to disclose the following to consumers:
- The lowest annual percentage rate offered by a finance company to the consumer
- Any charge imposed by the dealership for arranging financing, including mark-up charges and processing fees;
- A statement that the consumer is not required to obtain financing through the dealership;
- The price of each additional good, accessory, service, product, or insurance offered for sale with the automobile; and
- The total cost and monthly payments, including financing, to purchase the car with each additional item included, without any items included, and with all items included.
The proposed legislation would also require used car dealerships to post and distribute a Consumer Bill of Rights to consumers. Dealerships will be required to retain a copy of the bill of rights signed and initialed by the customer for six years following the sale. The Bill of Rights would inform consumers that used car dealerships must:
- Offer a contract cancellation option agreement;
- Inform consumers that they are not required to finance their purchase through the dealership, they have the right to pay in cash or seek a loan from another lender;
- Sell cars at the price advertised, quoted or posted on the automobile;
- Inform consumers that they can file a complaint;
- Inform consumers that they are entitled to a “Used Car Buyer Guide,” as well as various warranties and rights under NY state laws;
- Inform consumers of the lowest annual percentage rate offered by the financing company and any fees being charged by the secondhand auto dealer for such financing purchases; and
- Disclose in writing the itemized cost of each additional good or service being offered, including the monthly and total cost of financing with and without each additional good or service.
The bills aim to tackle common deceptive and predatory practices engaged in by used car dealers, including:
- Deceiving consumers into loans with longer-than-necessary repayment terms, making the car much more expensive for the consumer;
- Deceiving consumers into agreeing to purchase a car with expensive “add-on” products that are often misrepresented as “mandatory” for obtaining financing;
- Misstating disclosed monthly payment amounts to make the car appear cheaper; and
- Failing to disclose dealer markups of lender financing rates, total interest rate, and the total amount a consumer will pay for a car over the life of a loan.
Dealers have an obvious financial incentive to sell as many cars as possible and trends suggest that systemic abuses ensure larger profit margins for dealers at the expense of consumers. As a result of these tactics, consumers are being pressured into loans they cannot afford. As with other forms of predatory lending, the tactics in the used car industry disproportionately affect people of color or those with low incomes, and have already been the subject of inquiry by federal agencies including the Department of Justice and the Consumer Financial Protection Bureau.
From October 2013 through March 2017, DCA received 826 complaints from consumers related to purchase or payment issues in connection with used cars. The complaints range from instances of forgery on contracts to a lack of material disclosures by dealership staff and are concentrated in boroughs outside of Manhattan where most of DCA’s licensees are located and customers are more likely to rely on automobiles for transportation.
The top five ZIP codes by number of complaints received are all in Brooklyn with the exception of Ridgewood in Queens. The characteristics of these neighborhoods suggest that used car financing issues are concentrated in areas that are traditionally unbanked or underbanked, have populations that are largely New Yorkers of color, or have sizeable communities of individuals with limited English proficiency.
American Community Survey data, aggregated by the City between 2010 and 2014, also shows that that our top complainant neighborhoods have significant populations of individuals without a high school diploma and living in poverty. In Cypress Hills, for example, approximately 22 percent of the neighborhood does not have a high school degree and nearly 30 percent live in poverty.
Although many aspects of financing, such as the way loans are structured or how high interest rates can be, are regulated at state and federal levels, New York City’s used car licensing law gives DCA oversight of used car dealers and the way in which dealers advertise and sell cars. The requirements in these bills would further strengthen the City’s ability to protect New York City consumers when they are buying a used car. The hearing for the bills is scheduled for April 26, 2017.
According to the Federal Reserve Bank of New York, auto loan debt is one of the fastest-growing household debt levels, with an increase of nine percent from 2015 to 2016, and 13 percent since 2005. At the end of 2016, Americans had nearly $1.2 trillion in outstanding auto loan debt. Consumer reporting agencies report that more than 25 percent of auto loans are classified as subprime and that the number jumps above 30 percent for used car loans.
DCA currently licenses 775 used car dealerships citywide, and it has received more than 5,500 complaints about the industry since mid-2013, including more than 1,050 since July 2016, the start of the current fiscal year. Since July 2013, DCA has conducted nearly 2,500 inspections (Spanish) of used car dealerships and issued more than 650 violations, most of which are for unlicensed activity, failing to post required signage, and parking vehicles on the sidewalk or roadway. As a result of the mediation of consumer complaints, investigations and settlements, DCA has secured nearly $913,000 in consumer restitution and assessed $1.6 million in fines against used car dealerships over the past three years.
Last month, DCA announced charges against Major World, one of the largest local used car dealerships with multiple locations, for using deceptive financing and sales practices that resulted in predatory lending targeting immigrants and New Yorkers with low incomes. DCA alleges that Major World has been submitting false information on consumers’ credit applications and failing to inform consumers of the precise terms of the financing agreement, such as interest rates, finance charges, and number of required payments.
DCA offers an online guide to Getting Your Finances in Gear to Buy a Used Car, which is currently available in English and Spanish, with additional languages coming soon. The guide informs New Yorkers of their rights when arranging financing for their used car purchase and provides general tips about used car dealerships. DCA also offers a comprehensive Used Car Buyer Guide with tips about shopping for a used car. Any New Yorker who is trying to get their finances in order before buying a car or who is struggling with debt, can make an appointment for free, one-on-one financial counseling at one of the City’s Financial Empowerment Centers by calling 311.
“Thanks to the efforts of the New York City Department of Consumer Affairs, under the leadership of Commissioner Salas, the City has enacted commonsense legislation aimed at rooting out predatory practices within the secondhand auto dealer lending market,” said Beth Goldman, President and Attorney-in-Charge of the New York Legal Assistance Group. “Once enforced, this new bill can help to ensure that consumers’ rights are protected and that vulnerable New Yorkers are spared the devastating consequences we have seen too often among our clients who fall victim to unscrupulous auto-lending practices.”
“The Center for Responsible Lending has advocated for a more transparent and fair auto lending market,” said Christopher Kukla, Executive Vice President of the Center for Responsible Lending. “This legislation is a great step forward toward that goal. In particular, car buyers in New York City would know that a dealer is increasing their interest rate for compensation and how much that previously hidden markup will cost them. This legislation would also curb the yo-yo scam, where the consumer drives off the lot thinking the financing is final but is later pushed to sign a new, more expensive loan contract. These are important protections.”
“All too often, car buyers at secondhand auto dealers watch their dream car turn into a nightmare through predatory financing and deceptive sales practices,” said Joe Valenti, Director of Consumer Finance for the Center for American Progress. “Tougher standards for dealers and better information about consumer rights will go a long way toward greater accountability for those who take financially vulnerable customers for a ride.”
“Child care, jobs, groceries, medical appointments, and so many other needs are often out of reach for families without a car,” said John W. Van Alst, Director of the National Consumer Law Center’s Working Cars for Working Families Project. “Abuses in the sale and financing of cars can make getting a car at fair terms almost impossible. The NYC Department of Consumer Affairs’ efforts to bring transparency to car buying would benefit not only consumers but also car dealers that want to treat their customers fairly.”
“Secondhand auto dealers and other predatory financial practices unfairly target hard-working low-income New Yorkers,” said Justine Zinkin, CEO of Neighborhood Trust Financial Partners. “Every day at Neighborhood Trust, we see the damages wrought by these practices as we work with the victims to repair their credit and recover from the financial hardships these tactics cause. We commend DCA’s role as a strong consumer advocate in ensuring a more just marketplace.”
The NYC Department of Consumer Affairs protects and enhances the daily economic lives of New Yorkers to create thriving communities. DCA licenses more than 81,000 businesses in more than 50 industries and enforces key consumer protection, licensing, and workplace laws that apply to countless more. By supporting businesses through equitable enforcement and access to resources and, by helping to resolve complaints, DCA protects the marketplace from predatory practices and strives to create a culture of compliance. Through its community outreach and the work of its offices of Financial Empowerment and Labor Policy & Standards, DCA empowers consumers and working families by providing the tools and resources they need to be educated consumers and to achieve financial health and work-life balance. DCA also conducts research and advocates for public policy that furthers its work to support New York City’s communities. For more information about DCA and its work, call 311 or visit DCA at nyc.gov/dca or on its social media sites, Twitter, Facebook, Instagram and YouTube.