Asbury Park Press

Loans To Car Buyers Questioned In Report

Asbury Park Press — Thursday, February 23, 2005

By LAUREN O. KIDD
GANNETT STATE BUREAU

TRENTON — Car buyers seeking loans from automobile dealers in New Jersey fall victim to "undisclosed finance markup charges," with minorities more likely to be overcharged than whites, according to a report released Wednesday by a watchdog organization.

New Jersey Citizen Action is pressing Attorney General Peter C. Harvey to launch an investigation into the relationship between dealers and lenders, which the report states has cost Garden State car buyers at least tens of millions of dollars since 1999.

One consumer said she wasn't surprised. Pamela Stewart, 22, of Long Branch, said she financed a new Kia from a dealership in August and still is trying to figure out which fees were included in the final price.

"It wasn't worth it," Stewart said. "I should have paid for it in full. Too many hidden charges. Too many hidden fees."

The practice of lenders letting car dealers subjectively raise the interest rates on loans past the "buy rate" determined by a consumer's credit score benefits dealers and finance companies, which share the profit, the report claims.

The report released Wednesday, titled "Hidden Auto Finance Markup: The Costs and Impact on New Jersey Consumers," includes studies of three lenders in the state.

Studies found that on average, over the life of a loan, General Motors Acceptance Corp. marked up loans by almost $700, American Honda Finance Corp. marked up loans by almost $750 and Primus Automotive Financial Services Inc., a division of Ford Motor Co., marked up loans by roughly $450.

Jim Appleton, president of the New Jersey Coalition of Automotive Retailers, the trade association representing the state's 650 new car dealers, said the rate offered to a consumer is "usually the best available rate in the marketplace."

The markup is similar to "the normal markup that goes on in any business between wholesale and retail," Appleton said.

Appleton also denies discrimination exists in the marketplace. "Discrimination is not only legally and morally reprehensible, but as a practical business consideration it is incredibly stupid," Appleton said.
Peter Choy, sales manager for Kay Honda in Eatontown, said he was unfamiliar with the markup practice.

But, as a rule, he said only customers with a poor credit history are charged steep interest rates. Otherwise, "When you have the special programs that Honda is offering, I think everyone is getting 1.9 percent or 2.9 percent interest," Choy said. "That, you cannot mark up."

Report cites study

To make its point about racial disparities, the report cited a study of Nissan's lending corporation's practices between 1993 and 2000. It found the average markup for black customers was $799, compared with the $460 average markup for white customers.

Consumers "have already been gouged on so many levels in New Jersey. We don't need something else that requires us to pay more," Maura Caroselli, an organizer for Citizen Action, said Wednesday at a Statehouse news conference.
A spokesman for the Division of Consumer Affairs, within the state Department of Law and Public Safety, said Harvey received the report and letter. Citizen Action is seeking full disclosure of the markups, refunds to previously affected buyers, implementation of one-time flat fees to dealers that arrange financing and the creation of a consumer education program.

"We will review the report and take appropriate action once we do that," said department spokesman Jeff Lamm.

A national trend

New Jerseyans are part of a national trend, advocates said. Americans financing vehicles through dealerships could be losing up to $1 billion a year, according to a report issued last year by the Consumer Federation of America.
"Shop around for loans," said Robert Brandon, an auto lending issues consultant to the Consumer Federation of America. "Get your credit score. Go to the dealer armed with that."

Press Business writer Michael L. Diamond contributed to this story.

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