Motorcycle Financing – A Bumpy Ride on the Open Road
Motorcyles are all about freedom and fun and wind in your face. But that "open road" fantasy fades fast when the bills pile up in a frightening heap.
For 50 years, Californians have enjoyed protections provided by the Rees Levering Act. This law applies to most street-legal motorbikes when sold with closed-end financing. The buyer may drive the motorcycle off the lot, but the lender holds title until the loan is repaid. The Rees Levering Act requires specific information telling consumers not just the cost of the vehicle, but also the cost of credit, so borrowers can shop for the best finance terms. The law further regulates repossession practices.
The traditional credit transaction for a vehicle purchase involves closed end financing. That means you know the term, or length, of the loan, and the monthly payment doesn't change. Credit cards, on the other hand, are open-ended, with no fixed term and fluctuating payments. It is a riskier purchase from the consumer's perspective.
A couple of years ago, we began to see a troubling trend. Motorcycle companies looking for loopholes in the Rees Levering Act started selling street bikes with open-ended credit through what looks like a factory-branded credit card. Despite the outward appearance, these operate differently than the usual co-branded card, such as an airline VISA card that can be used at any retailer that takes VISA. These, on the other hand, can be used only to buy the motorcycle and perhaps some accessories or maintenance services. In many cases this is an abuse of truth in lending rules.
So what's going on here? The ready use of credit helps manufacturers move product in a tight market. A low initial monthly payment gets the buyer past sticker shock.Yet, consumers have no idea they may be giving up important fraud protections when they buy a bike with a factory-branded credit card. The devil is in the details, there in the form of small print legalese. That $99/month offer is likely to be a teaser rate. We have even seen deals like $49 for 24 months. But what happens after that? The bike is not paid off. All of a sudden the monthly charges increase and the consumer has no idea why, or how to challenge the bump. In some cases, this is just a bait and switch with a new plastic lure.
These factory-branded cards are so profitable, that manufacturers have poured money into catchy ad campaigns. The images play to the dream of "Easy Rider," but easy credit can turn the dream into a nightmare of uneasy debt. If you are the victim of this kind of bait and switch, give us a call.
