In the weeks and months ahead we will probably be referring back to this story.
From n+1:
Our cars, no matter how much we cherish them, hold us in social and economic custody
For many Americans, it is easier to acquire a new car than to find a rental apartment they can afford. But there is a high price, in sheer debt, to pay for getting that ride on the road. The average monthly loan payment for a new vehicle recently passed the $700 mark, a figure that does not include insurance and the steep costs of maintenance. Currently, Americans owe 1.52 trillion dollars in auto debt—a staggering sum that has doubled over the last decade, due in large part to the migration of subprime loans from the housing to the auto market.
Buyers routinely drive off the lot in cars that are beyond their means. This is especially true for the more than one in three American consumers with subprime credit scores, which a cycle of bad auto debt will only tank further. No other asset loses value so rapidly, or is financed by such loosely regulated lenders, prone to predatory practices. With loan terms now being stretched to more than 84 months, many owners never succeed in paying off their debt. They end up “upside down” on their loans, meaning that they owe more for the car than it’s worth—and so they fold the balance into another loan for a new vehicle. (In 2020, a whopping 44 percent of all traded-in vehicles were carrying negative equity.) Lenders show little leniency if they fall behind on payments. Indeed, many expect borrowers to default, and so repossession is invariably the next step, allowing dealers to sell the car to the next sap. Even if surrender of the vehicle is voluntary, drivers take a big hit on their credit scores, making that next car loan more expensive and their debt hole even deeper. Yet there is no alternative. The prospect of living and trying to find work in most parts of the US without a car is a much harsher economic penalty.
Nor is that the only punishment in the offing. A jail sentence is also a potential outcome, depending on the tenacity of a debt collector, or the indifference of a judge.
Technically speaking, no one can be imprisoned for failing to pay civil debts, though many end up behind bars because their creditors are allowed to exploit loopholes in the legal process. Loopholes abound in the patchwork of state usury laws, and some of the most gaping can be found when buying a car. Unlike student and mortgage loans, in which government agencies are involved as direct lenders or insurers, auto financing is a wholly private and unsecured market. For its part, the federal government collects very little data on this market, so borrowers and lenders are at liberty to ignore the statutory limits in the interest of making a deal. But even without these private workarounds, the complicated structure of an auto loan transaction makes it easy to exceed state usury caps.1
In some states with no usury caps, or where loans are required only not be “unconscionable,” exorbitant interest rates are perfectly legal in auto financing. In many others, lenders and dealers evade usury caps because their loans are packaged as a “retail installment contract” (RIC). Typically, a dealer will sell a RIC to a bank or financial institution, which is then entitled to collect principal and interest payments as an “indirect lender.” These creditors could not legally lend directly to customers at rates that exceed the state-mandated cap, but they can when they buy auto RICs. The dealer takes a cut of the financial profit—a markup on the buy rate—but the right to collect the lion’s share of the returns belongs to the external lender....
....MUCH MORE
