June 24, 2010

NCLC Consumer Resources

nclc_logo.jpg The National Consumer Law Center just launched a new website. Check it out here. The nonprofit center, headquartered in Boston, has been a premier source of assistance for consumers, legal services and consumer lawyers for decades.

Its new website provides information on NCLC's recent reports, numerous publications and current initiatives. Among other things, NCLC publishes reports on scams and predatory trends in consumer transactions, manuals and treatises on a wide variety of legal topics affecting consumers, as well as other books for lawyers and the public alike.Return%20to%20Sender.JPG NCLC is the publisher of "Return to Sender - Getting a Replacement for Your Lemon Car" by Nancy Barron.

In addition to its publications, NCLC funds research, legal conferences and consumer education programs on a wide range of important consumer topics -- from automotive fraud and warranty law, to financial abuse of the elderly, energy policy, student loans, and predatory lending.

Kemnitzer, Barron & Krieg is actively involved in the work of NCLC. Bryan Kemnitzer is a member of the partner's council and Nancy Barron currently serves on its board of directors.

June 11, 2010

Car Dealers Fear Financial Reform

Finance reform has been bumped from front page news by international incidents and the catastrophic BP oil spill. But even as public attention has shifted elsewhere, the National Automobile Dealers Association (NADA) has not lost its focus on Washington. They are lobbying hard against legislation aimed at improving consumer protection. Why?

sleazy-salesman-thumb.jpgThe landmark financial reform package that is working its way through Congress would greatly improve financial oversight of lenders. This means a wide variety of entities who share in the business of lending money, not just banks. After the House and Senate passed different versions of the bills, lawmakers from both bodies are in the process of reconciling the two versions. The battle is drawn, because the House passed a bill that exempted car dealers from financial reform, but a similar amendment failed in the Senate.

The outcome of this process will greatly affect the way cars are sold in coming years. NADA is lobbying for its car dealers to be exempt from financial regulation, and is trying hard to persuade committee members that dealers don't get involved in car loans. Nothing could be further from the truth. As Paul Wiseman of USA Today reports, "auto dealerships originate 79% of auto loans and leases." He goes on to quote the non-partisan Cambridge Winter Center for Financial Institutions Policy as concluding "that auto finance is demonstrably susceptible to unfair and deceptive practices." You can read USA Today's article here.

The argument made by car dealers that they are all small mom & pop shops is also far-fetched. While many are indeed locally owned, thousands of dealerships are controlled by mega-dealers like AutoNation whose 100+ stores have reportedly sold more than 7,000,000 cars. These multi-state conglomerates keep a short leash on customer finance through their tightly controlled on site dealer finance departments and preferred lender programs which direct dealer-arranged financing to a handful of financial institutions.

Just this week, the trade publication, Automotive News reported NADA to be particularly concerned that the proposed consumer financial protection agency would have scrutiny over sale of service contracts and aftermarket items. As we have often discussed on this blog (click on "Shopping for Car Loans") regulation of dealer finance departments is long overdue.

April 10, 2010

Consumer Literacy - A Case for Doing the Numbers

We are bombarded daily with advertisements for new cars, used cars, leased cars, rental cars, sales, auctions and swaps. When you can’t tell the “no-down” from the “low-down,” I say it’s time to slow down. Do the math. Don’t cringe! The fact is things cost money. And money is all about numbers.

Any time you are not paying cash, you need a calculator or a clear head for something called “credit math.” You are buying two separate things: (1) the wheels and steel you will drive off the lot and (2) the money you need to pay for it. Each of these two things makes a profit for someone, and their profit comes out of your pocket. Subtraction and addition, in other words. Throw in some multiplication and division, fractions and percents. Those are the basic functions of credit math.910922_calculator.jpg

The mathematical relationship between buyer, seller, lender and borrower is the very crux of our economy. And, at its most basic, a fundamental failure of that relationship is what set off the global economic crisis. Bankers and brokers took advantage of the fact that, in layer after layer of transactions, the person signing the documents had no clue what they meant but assumed that someone, somewhere did. Financial illiteracy got us into this mess.

Consumer literacy should be a matter of national security. All Americans should know how to ask - and get answers to - questions that affect financial health: Can I really afford this loan? What is the difference between credit and debit, or debit and debt? What is my interest rate? What’s an APR? When should I pay cash? Why do I owe this late fee? What factors go into a credit score? How do I protect against identity theft?

Finally, consumer literacy is getting some attention. An article in today's New York Times laments the dearth of financial skills training in standard curriculum. It will be a long time before budget-strapped high schools offer such courses, but there is some evidence that money matters are creeping into the classroom. The National Endowment for Financial Education has produced a number of programs for use in schools. One useful tool mentioned in the NYT piece can be accessed online here While it is billed as “40 Money Management Tips Every College Student Should Know,” there is plenty of good advice for all of us.

March 30, 2010

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.
656046_red_bike.jpg 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.

March 16, 2010

Kemnitzer, Barron & Krieg Launches New Website

Kemnitzer, Barron & Krieg LLP, the host of this California Lemon Law Blog, has just launched a new website with a Q&A section on a variety of consumer protection areas, ongoing consumer alerts, attorney biographies, internet resources, a bibliography and contact links. Check it out here

The firm represents consumers throughout California and has, to date, filed cases in 34 separate California counties. Bryan Kemnitzer, Nancy Barron and Bill Krieg have a combined 99 years experience as trial attorneys fighting to protect consumer rights.

Supported by a dedicated staff, attorneys in the firm have taken individual and class action cases to trial, obtaining verdicts and judgments that include punitive damages and civil penalties. On the other hand, the vast majority of cases settle prior to trial. In settlement, Kemnitzer, Barron & Krieg have obtained debt relief exceeding $300 million, as well as thousands of new car replacements and refunds.

As California consumer lawyers, the members of the firm believe that every consumer is entitled to safe and reliable transportation, fair credit, truth in lending, access to the courts and freedom from fraud. All clients have the opportunity to learn more about consumer protection in ways that increase consumer literacy and save money, as well as resolve the particular case at hand.

April 10, 2007

Test Drive the Car Financing

Car dealers sell you two separate things whenever you buy a car or truck, unless you pay cash for the full purchase price. They sell you (1) the vehicle itself and (2) the means to pay for it. You probably test drove the car. But did you “test drive” the financing? If you merely looked at the monthly payment, it is as though you kicked the tires, but failed to look under the hood.

It is important to remember that you pay one amount for the “wheels and steel” and you pay another amount for the lease or loan. Unless you pay cash, each of these items is a separate profit center for the seller. Many consumers who come to see us are surprised to learn that, just as the cash price of the vehicle is negotiable, so are terms of the financing.

It’s a good idea to take a calculator and scribble pad to make your own notes. That way you have your own record of what was said. If you were responding to an ad, keep a copy of that ad. Once you decide on a car, have the terms of the window sticker right at hand. Decide before you go whether you want to lease or buy, and the total you want to pay over a set period of time. When you are in the midst of deciding between black or tan interior, you may not notice a bait and switch.

You might deal with the salesman on the lot and the “F&I guy” (finance & insurance) in the office. The F&I guy loves to speak in terms of “win-win” situations. That’s when things can start to get slippery. Here’s a checklist to help you “test drive” the financing:

1) Is your credit application accurate? Never sign it in blank.

2) Is the contract labeled Lease or Retail Installment Sales Contract (loan)?

3) What is the cash price of the vehicle?
How is that different from the total amount you will pay?

4) What was the highest and lowest interest spread the bank is willing to offer?

5) If there is a rebate, where is that stated on the contract?

6) Does the contract list the add-ons and accessories you are paying for?

Are these all things you wanted, at the price you negotiated to pay?
In a lease, these should be in a box labeled “Itemization of Gross Capitalized Cost”

7) If you have a trade-in, are you being given a credit or being charged a negative?

And how much? Is that what you negotiated?

8) Cross out any mandatory arbitration clause in the contract.

If it is a “take-it-or- leave-it” requirement, note that in writing or walk away.

9) Calculate not just the monthly payments, but the number of months.

Look at the total figure you are agreeing to pay.
Do you know enough about your job, family and future finances
to know you can still pay that monthly amount at the end of the term?

10) Is the VIN on the contract the same as the VIN on the car you actually test drove?