Auto lenders are taking advantage of Americans who need their cars to go to work or school and for shopping, trapping them into car loans with high-interest rates and inflated costs, according to U.S. PIRG, a public interest organization.
A report, "Driving into Debt" by the U.S. PIRG Education Fund, offers information on the hidden and risky costs of car ownership in the United States.
Today, Americans owe more than $1.2 trillion on car loans. And a significant share of that debt is owed by borrowers with lower credit scores, who are particularly vulnerable to predatory loans.
The report found widespread evidence of abusive and discriminatory lending practices in car financing that trap vulnerable Americans in debt with few ways out.
Car loan debt is a source of financial hardship for millions of families, said Elise Orlick, state director of WashPIRG
“Americans should be confident they will not face a lifetime of debt because they didn't have the protections they needed when buying a car,” Orlick said.
The report points out problems with the nation’s transportation policies:
- Access to a vehicle is necessary to reach jobs and economic opportunities in much of the nation. Even in the nation’s most transit-oriented metropolitan area, New York City, only 15 percent of jobs are accessible within an hour by transit, as opposed to 75 percent within an hour’s drive. Other cities with less extensive transit systems have even fewer jobs accessible via transit.
- Auto dependence is the result of generations of public policy. Since 1956, highway spending has accounted for nearly four-fifths of all government investment in the nation’s transportation system. Meanwhile, the embrace of single-use zoning and sprawl-style development separates people from jobs and other necessities, making access to an automobile all but mandatory for the completion of daily tasks.
U.S. PIRG recommends strengthening consumer protections for car borrowers and expanding transportation options.
To protect consumers:
- Close loopholes that allow auto dealers to charge excessive interest rates when consumers buy a car.
- Enforce existing protections against fraud.
- Prohibit discriminatory loan markups.
- Require lenders to determine the ability to repay before issuing a loan.
- Address the conflicts of interest present in indirect lending through auto dealers, and expanding options for responsible lending to low-income Americans.
To expand transportation options:
- Increase public transportation service, with a focus on services that provide job access.
- Improve conditions for people who walk or bike.
- Incentivize carpooling, and encourage the deployment of shared mobility services such as carsharing that reduce the need for personal car ownership.
- Adopt land use and economic development policies that encourage the location of homes and jobs in areas accessible to public transportation.
