Dealer Financing

Most dealerships have a Finance and Insurance (F&I) Department, which provides one-stop shopping for financing. The F&I Department manager will ask you to complete a credit application. Information on this application may include: your name; Social Security number; date of birth; current and previous addresses and length of stay; current and previous employers and length of employment; occupation; sources of income; total gross monthly income; and financial information on existing credit accounts.

 The dealership will obtain a copy of your credit report, which contains information about current and past credit obligations, your payment record and data from public records (for example, a bankruptcy filing obtained from court documents). For each account, the credit report shows your account number, the type and terms of the account, the credit limit, the most recent balance and the most recent payment. The comments section describes the current status of your account, including the creditor’s summary of past due information and any legal steps that may have been taken to collect.

Dealers typically sell your contract to an assignee, such as a bank, finance company or credit union. The dealership submits your credit application to one or more of these potential assignees to determine their willingness to purchase your contract from the dealer.

These finance companies or other potential assignees will usually evaluate your credit application using automated techniques such as credit scoring, where a variety of factors, like your credit history, length of employment, income and expenses may be weighted and scored.

Since the bank, finance company or credit union does not deal directly with the prospective vehicle purchaser, it bases its evaluation upon what appears on the individual’s credit report and score, the completed credit application, and the terms of the sale, such as the amount of the down payment. Each finance company or other potential assignee decides whether it is willing to buy the contract, notifies the dealership of its decision and, if applicable, offers the dealership a wholesale rate at which the assignee will buy the contract, often called the “buy rate.”

Your dealer may be able to offer manufacturer incentives, such as reduced finance rates or cash back on certain models. You may see these specials advertised in your area. Make sure you ask your dealer if the model you are interested in has any special financing offers or rebates. Generally, these discounted rates are not negotiable, may be limited by a consumer’s credit history, and are available only for certain models, makes or model-year vehicles.

When there are no special financing offers available, you can negotiate the annual percentage rate (APR) and the terms for payment with the dealership, just as you negotiate the price of the vehicle. The APR that you negotiate with the dealer is usually higher than the wholesale rate described earlier. This negotiation can occur before or after the dealership accepts and processes your credit application.

This is a fairly intricate process and one that many consumers are unfamiliar with.  Since the dealer or finance company has the “home field advantage”  there are many instances of consumers who are financing their new auto purchase being confused or deceived through misleading and fraudulent means and thus end-up paying thousands more.

Florida Auto Finance Charge Limitations

(The finance charge is too high, too much interest being charged).

This is one of the most common issues encountered by consumers.

Florida has a usury law.  Usury is the practice of making unethical or immoral monetary loans intended to unfairly enrich the lender.  Usury is an ancient construct that has biblical roots.  The Florida Supreme Court long ago explained, “[t]he very purpose of statutes prohibiting usury is to bind the power of creditors over necessitous debtors and prevent them from extorting harsh and undue terms in the making of loans.”  With Usury  as applied to auto loans in Florida there is a prohibition  of charging over 18% interest on loans less than $500,000.   But wait my loan is at 22% interest so it must be usurious right?  Well that depends on whether or not the dealer or finance company who wrote and/or holds the loan is properly licensed.

If the dealer or auto finance company is not licensed (and this happens more than you might think) and consumer is being charged interest in excess of 18%  the loan is usurious and illegal and the consumer so charged has legal remedies available to them. If the dealer or finance company is properly licensed then they are allowed to charge interest above 18% but within the limits of  of their enabling statute or  their “safe harbor.”  How much more interest?  Well that depends upon which “safe harbor” statute applies but for an example we’ll look at Florida’s Motor Vehicle Retail Sale Finance Act (Fla. Stat. Sec. 520)

The Florida’s Motor Vehicle Retail Sale Finance Act has a finance charge limitation as well and any amount of interest charged by the dealer or finance company above this limitation is usurious.  The limitations can vary and depend whether the subject vehicle of the loans is new or used and if used how old the vehicle is.  As a general rule dealers and auto finance companies can not charge as much interest on new or newer vehicles.

To determine what the finance charge and rate of interest is on the auto loan is much more confusing to consumers than it should be.  The maximum finance charge that dealers and auto finance companies can charge is not expressed as an Annual Percentage Rate (APR).  It is not as simple as “drawing a line in the sand” at a certain APR (loans above “x” APR exceed the finance charge limitation).

The APR and the finance charge need to be looked at independently.  The APR is an expression of the finance charge on an annual or yearly basis and the APR needs to be properly disclosed to the consumer via the familiar Federal Truth In Lending Act (TILA). Because the APR is an expression, it is the finance charge that needs to be examined to determine if the dealer or auto finance company exceed the limitation.

Under Florida’s Motor Vehicle Retail Sale Finance Act the maximum that can be charged for any type of loan is expressed as “$17 per $100 per year. You might be thinking that is 17%, but it is not.   What it means is that the dealer or auto finance company can charge $17 dollars of interest per year on every $100 that you borrow.  

To illustrate this lets assume you bought a  5 year old used vehicle for $12,000  and put $2000 down.  So you are borrowing $10,000 to purchase the vehicle and the dealer or finance company is charging you the maximum finance charge provided by law ($17 per $100). We are also going to assume monthly payments for a 3 year loan (if your payments are more frequent basis i.e. [weekly or bi-weekly] the calculation is a little different).  Here the maximum finance charge would be $5,100 on this loan and expressed  as an APR it would be a little over 29% *.  The maximum finance charge would be calculated like this:

max rate allowed by law   X  amount financed / $100    X   # of payments / 12   

$17 X $10,000 (amount borrowed for the vehicle) / $100 X 36 (3 year loan with monthly payments) /12 = $5,100.

Depending on the loan these calculations are sometimes pretty tricky.  If you suspect you might have been charged too much in interest or finance charges on your auto loan in Florida. You should contact this office for a FREE review of your auto financing documents.   You may have remedies available to you to combat your high interest auto loan.  Which may result in your entitlement to financial compensation and/or rescission of the auto loan.

*Note: the calculation of the APR is important and its proper disclosure to the consumer is required TILA, but for the purposes of this illustration, the calculation of the APR will not be addressed.

Federal Laws on consumer credit:

• Truth In Lending Act
• Fair Credit Reporting Act
• Equal Credit Opportunity Act
• The Fair Credit Debt Collection Act

Truth in Lending Act (TILA) – The Truth In Lending Act is Federal legislation that protects the consumer by requiring, among other things, complete disclosure by the creditor or lender:

• the interest rate;
• number of payments;
• amount financed;
• finance charge;
• name of the creditor and address of the creditor.

Prior to TILA’s enactment, consumers had no easy way to determine how much credit would really cost or how to compare loans among various lenders and creditors.   The goal of the act was to create a simple and uniform way to disclose the terms of the loans so that consumers can have this information to make informed decisions when purchasing on credit.

The Truth In Lending Act is a strict liability statute. There is no intent requirement. The Dealer or Auto Finance Company can violate the statute by mistake and continue to be liable for a violation of the Truth In Lending Act. Under some circumstances there is a good faith defense. There are statutory damages and mandatory attorney’s fees and costs.

You may have a case under TILA if you did not receive complete and accurate disclosures of your interest rate, or amount financed.  TILA also prohibits certain kinds of deferred down payments and the charging of hidden finance charges.  If the Dealer or Auto Finance company has violated the act you may be entitled to damages.

Fair Credit Reporting Act (FCRA):

 The FCRA governs the behavior of consumer reporting agencies (credit bureaus) and the businesses (Dealers and Auto Finance Companies) or individuals that report information to the consumer reporting agencies (CRAs). The CRAs compile this information into your credit report. Other creditors, landlords, and employers often rely on information in your credit report when making decisions on whether to extend credit to you, give you a job, or rent a home or apartment to you.

The FCRA provides rules about who can access your report, what can be reported and for how long, and what CRAs and information suppliers must do if you dispute information. 

If a CRA or another entity, violates the FCRA, you might suffer harm. For example, inaccurate information in your report could lead a creditor to deny you a car loan or credit card, an employer to refuse to hire you, or a landlord to decide not to rent to you. You could suffer other harm as well.

If there is a FCRA violation, you can sue in court if it can be shown that the CRA, dealer or auto finance company, or entity using the information, willfully violated their obligations under the FCRA and you may be entitled to damages. 

Equal Credit Opportunity Act (ECOA):