FOR IMMEDIATE RELEASE:
Wednesday, July 16, 2003
Norma Garcia or Michael McCauley
Statement of Norma Garcia of Consumers Union
SACRAMENTO, CA – We applaud California Governor Gray Davis for signing into law a new measure that will help deter auto dealers from charging hidden, excessive interest rates on loans. California is the first state to enact a law aimed at curbing this common industry practice, which can add thousands of dollars to the cost of an auto purchase.
This new statute addresses serious injustices in credit transactions involving buyers of automobiles and dealers who sell or lease autos and arrange financing. There is ample evidence that dealers are steering buyers into higher cost credit when the borrower could qualify for cheaper credit on better terms. A number of lawsuits have alleged that African American and Latino consumers are especially hard hit by this practice.
Most consumers do not know that dealers are under no obligation to offer customers the best credit for which they may qualify. Just as troubling is that dealers are not required to offer credit at the same cost or on the same terms quoted by the lender for a particular customer. As a result, car customers often pay more than they should for financing. A dealer has no incentive to offer the best price available, can mark up a quoted price at will, and is often motivated to select financing with the lender that will provide the highest profit to the dealer in the form of a kickback rather than the best deal for the consumer.
The new law requires automobile sellers to retain important sales related records, including documents related to creditworthiness, for seven years and to make them available to the Attorney General upon court order. It imposes a civil penalty of $5,000 for failing to comply with the document retention requirement. This is an important first step in addressing this serious problem. California’s new law will help curb excessive dealer mark-ups and enable the Attorney General to better protect consumers from discriminatory auto lending.
Consumers Union, nonprofit publisher of Consumer Reports, is an independent, nonprofit testing and information organization, serving only the consumer. We are a comprehensive source of unbiased advice about products and services, personal finance, health, nutrition, and other consumer concerns. Since 1936, our mission has been to test products, inform the public, and protect consumers.