Customers Struggle as Auto Insurance Costs Skyrocket By Ted Craig
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Keeping up with car payments and auto insurance payments creates a constant struggle for many used-car buyers, and the struggle grows harder as costs rise. Auto insurance rates grew faster than the rate of inflation in the past few years. These rates are driven by a number of factors, including the large payouts in the past decade due to the Sept. 11 attacks and Hurricane Katrina. Adding to the costs for many usedcar buyers is the fact that insurance rates are often linked to credit worthiness. This creates problems for dealers who finance the vehicles they sell and lease. Customers must provide insurance at the time of the sale. Often they drop it shortly after the purchase, said Ken Shilson, founder of the National Alliance of Buy-Here, Pay-Here Dealers. This means buy-here, pay-here dealers have thousands invested in uninsured assets. Shilson said dealers have three options: they can place insurance on the vehicles themselves; repos-
sess the car because the customer is out of contract; or ignore the situation. “For the most part, none of these decisions is a good one,� Shilson said. If the dealer decides to place insurance on the vehicle, he has two options. One is vendor single insurance, which spreads the cost across all the cars a dealer sells, or collateral protection insurance, the cost of which is passed directly onto the driver. Attorney Gerald Sachs said regulators are wary of CPI because consumers can’t shop for best the rate. The driver does have the ability to shop for an alternative and have the CPI taken off the vehicle. Chris Kirwan, president of Berkshire Risk Services, said dealers should accommodate consumers as much as possible when it comes to CPI. That means cancelling it as soon as the driver proves he has other insurance. Kirwan also said the dealer must disclose upfront that CPI will be placed on the vehicle at the driver’s expense if he fails to maintain insurance on his own.
New Reality Tests Dealers By Ted Craig
ORLANDO – The landscape for buy-here, pay-here dealers has become much rougher. There is escalation in regulation driven in part by competition among various agencies and the old ways of doing business are under attack. “It’s kind of a vicious environment right now,� said attorney Gerald Sachs. What worked for dealers in the past may no longer work today was the message delivered by several speakers at the recent National Alliance of Buy-Here, Pay-Here Dealers conference here. Take something as basic as the phrase “We Finance Everybody.� This is a concept so central to some stores that employees literally wear it on their sleeves as part of the store uniform. They might want to change their shirts, said attorney Trish Cacciola with Hudson Cook. “I’ve got to be honest,� Cacciola said. “I find it hard to believe any dealership is able to do that.� Another popular pitch is that a dealership will finance anybody with a job. The problem with that is creditors cannot exclude those with income
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from sources other than employment. Regulation B of the Equal Credit Opportunity Act protects certain categories. Some seem obvious, such as race and gender, but recipients of public assistance income are another protected class. Problems arise because there remains no clear definition of income when it comes from alternative sources, such as aid for children. Sachs recommends reading the Consumer Finance Protection Bureau’s bulletins and releases on public assistance income. Cacciola recommends the Internal Revenue Services as another source of defining income. Sachs used to work for both the CFPB and the Federal Trade Commission. He said both agencies spend plenty of time watching commercials, reading print ads and listening to radio spots, seeking violations. Dealers are going to discover quickly that the way they’ve always done business won’t work anymore. But in many ways it shouldn’t have worked in the past. “The CFPB and the enforcement agencies are enforcing laws that have been around for a long time,� said attorney Tom Hudson.
11/9/15 5:05 PM