news-record.com

RALEIGH — So, did you really get a good deal on that car loan?

According to the Durham-based Center for Responsible Lending, you may never know.

Car dealers regularly shop loans for new and used cars to a variety of banks, said the center’s Chris Kukla, often getting loan offers that vary in interest rates. Consumers, Kukla said, often don’t know if they’re getting the best of those rates.

“That’s the really tricky part,” he said. “There’s no way for consumers to know. The dealer is under no obligation to tell them.”

Frequently, finance companies can offer a “dealer reserve,” an incentive to the deal to put the customer in a higher-priced loan, according to Kukla.

Such reserves would be outlawed under a bill filed by Rep. Dan Blue, a Raleigh Democrat, and backed by Greensboro Reps. Pricey Harrison and Earl Jones.

Consumer advocates argue that the loan practices in question can cost car buyers hundreds or thousands of dollars over the life of the loan. For example, a customer with good credit might qualify for a 0 percent interest rate and still end up paying 2 percent. For those whose credit scores are worse, the difference could be between an 8 percent rate and 10 or 12 percent, Kukla said.

But car dealers argue the bill could hurt their already struggling businesses.

“The impact would be devastating on car dealers,” said Robert Glaser, president of the N.C. Automobile Dealers Association. “No car dealer says you have to have his financing. If the customer can get a better rate through a credit union or a bank or somewhere, customers are not required to finance through a dealer.”

Other provisions of the measure would:

• Require dealers to more clearly spell out the cost of “ancillary items” sold with the car, including rust-proofing and additional warranties.
• Require dealers to take back a car and return a customer’s trade-in if the final financing terms for a deal are not the same as those originally agreed to. Such switches can happen if the dealer makes a contingent deal that allows the customer to drive a car off the lot before the final financing is processed.

Jones said that when he worked at a nonprofit that helped low-income people and those just leaving prison, many of his clients were hit with bad loan terms and extra fees.

“One I remember, it was 12 or 13 years ago, a guy bought a used car 'as is,’ the dealer didn’t do anything to it, for $3,000 but there was a $300 'automobile restoration fee.’ This bill would help police that,” Jones said.

But most dealers already go out of their way to disclose fees and the costs of financing, said Tim Ilderton, who runs a Dodge, Chrysler and Jeep dealership in High Point. In particular, he said, providing on-site car loans is a service that a lot of customers need and want.

“We look at it as a service, a convenience for the customer that is highly regulated,” Ilderton said. “Why it might be manipulated is beyond me.”

Ilderton said he had forms that show customers various costs for their car purchase, including one configuration where they just buy the car and no other service.

Glaser said car dealers such as Ilderton are increasingly squeezed, making less and less of their profit on the sale of the cars themselves. Anything that would restrict or eliminate the sale of financing and other services could drive some dealers out of business, he said.

Blue, the bill’s chief author, said that the provisions may not stand as written and were offered mainly to start a discussion.

“As well, you’ve got to understand the status of the industry,” said Blue, saying that any new law would have to take the sour economy into account.

“We don’t want to hurt their business,” Blue said. “But we don’t want them to cheat people, either, and I think they understand that. Ultimately, we have to look out for the consumer interest.”

 Contact Mark Binker at (919) 832-5549 or mark.binker@news-record.com