Friday, January 20, 2012

Buy Here - Pay Here - Leasing Used Cars

Dealers who offer these deals to the poor are really ripping them off.  The latest gag is leasing used cars to the poor.  Should we be outraged by this?  Or shake our heads at the stupidity of the poor and understand why they remain poor?  Tough call.

In a recent NPR article, they discussed Buy Here, Pay Here (BHPH) used car lots and the new trend of leasing used cars through such lots.  From the tone of the discussion, you would think they were talking about Cricket scores or something.  I was appalled by the lack of outrage.

In case you missed it, not only are these bad deals, they are horribly bad deals, offering clapped-out used cars to the very poor, at prices that are above book value and at interest rates that are often DOUBLE or TRIPLE what the local credit union will offer.   Some offer interest rates as high as 35%!

They target the poor, who often screw the pooch by not paying their bills, and thus have bad credit.  And all these BHPH places do is screw the poor even further.  Even if you pay off such a "loan", since the payment is not reported to the credit reporting agencies, it does little to "repair" your credit - as they often promise.

And typically, such cars are in bad shape and poorly maintained and the buyer is so overwhelmed by the pricing that they let the car go to repossession - which does get reported to the credit agencies.  Some of these cars may be sold - and re-sold - by the same dealer, three, four, or five times.

And since these cars are upside-down on loan financing, getting collision insurance is often difficult, if not impossible - and even if possible, the terms are onerous.  The driver may pay more for insurance than they do for the car payment!

But as if that wasn't enough, these same BHPH scumbags have moved into leasing their clapped-out junkers.  By positing the sale as a "lease" they can wrap the interest rate into the document, so that the buyer doesn't even realize how much he is paying in interest.  All the buyer looks at is monthly - or weekly - payment terms.

Buyers are attracted to these deals, as they are often little or nothing-down deals.  There may be a processing fee (which is the profit paid to the salesman) and then the payments start.  But unlike a new car, which is under warranty for four or five years, a used car needs repair.   And thus the "owner" of the car has to maintain it - and often unscrupulous dealers insist the lessee bring the car only to them for service.

And yea, if you go on the internet and google this nonsense, you will find shill sites telling you what a great deal these are.  Needless to say, an online article authored by a car dealer, is not the best source for information on buy-here pay-here (BHPH) financing.

So, what's the big deal?   Anyone with an 8th grade education can see this is poverty financing at its worst.   And yea, the BHPH car dealers are right next door to the title pawn loan places, the payday loan places, the check cashing stores, the pawn shops, and all the other raw deals we foist off on the poor.

And you talk to the Jethro going into such joints, and he will rationalize why these deals are good ones - after all, he puts "nothing down" on the hoop-de of his dreams!

So, does government need to protect people from themselves?  Or do we let people screw themselves and then sit idly by while they go bankrupt and cry out for government assistance?

The latter scenario illustrates why perhaps these sort of odious financial deals affect all of us.   When a poor person is screwed out of his last dollar by these con artists, he ends up bankrupt, destitute, and first in line for food stamps, SSI, Welfare, Unemployment, Medicaid, and whatever other safety-net largess we hand out these days.

So far from being a victimless crime - or a crime limited to only those players who chose to play - these odious financial deals impact us all - as we the taxpayer have to foot the bill for the bailout.

It is like, for example, when Bain Capital guts a company, collects millions in fees, underfunds the Pension and health care plans and then walks away saying "Gee, sorry, it didn't work out!".  We the taxpayer end up paying more to cover the needs of those people who worked there and got screwed in the process.

This sort of "Free Enterprise" is not creating wealth, but merely redistributing it - mostly from the government to the people running these schemes - by way of their impoverished victims.  It is like casinos - they create no real wealth, they just rearrange it.

And unfortunately, it seems our economy has devolved to this - we are stripping out the copper wire and plumbing in the abandoned factories and selling it for scrap - making a little money for the salvage operators, but insuring that that factory (our economy) will never be productive again.

I said it before and I will say it again.  When Al Gore said we are moving from a manufacturing-based economy to an information-based economy, I predicted that eventually, we will morph into a fraud-based economy - as more and more people spend their days trying to con the last remaining dollars left in the economy out of the two or three people who still have them.

This sort of nonsense is not sustainable nor does it create real wealth.  And it savages the lives of the people victimized by it.

Yet, I doubt government has the courage to do much to shut these sorts of places down.   Which means you, the consumer, are on your own here.

Get the word out.  When you drive by a BHPH car lot, lean out the window and scream "RIPOFF!" loud enough for the customers to hear.

It is a shame the "OWS" crowd doesn't occupy these sorts of places.