Auto Lending: Last Week Tonight with John Oliver (HBO)

cars the muse for america's greatest songs from the complete works of bruce springsteen to tim mcgraw's ode to the american truck if you like it up loud and you're hillbilly proud [Music] that song is untrucking believable i mean sure it doesn't really make sense that they're just driving around in an empty lot but it looks like they're having fun so who gives a flying truck but america's auto obsession isn't just a hobby 86 of american workers get to work by automobile and the remaining 14 presumably commute by public transportation walking or in the case of that one weird guy in your office named nathaniel penny farthing bicycle get down from there stop it and if you don't have a car holding down a job can be a tremendous challenge just watch one woman describe her daily commute via public transportation i normally still get the kids out on their bus on time it's just a matter of not whether i'll make my bus this is the first bust and then i take two trains and another bus normally it takes me roughly an hour and a half to two hours on an average day if i were to drive to work it takes me maybe 10 or 15 minutes so her commute would be 10 minutes with a car but without one she is literally the length of the movie the imitation game away from her job which is to say two wasted hours that feel like forever but but cars are obviously expensive which is why many people have to take out loans to buy them some from places like this everyone is approved at buyer's auto sales regardless of your credit even if this is my trade-in i'll approve even if i'm self-employed i'll approve even if we have two repossessions of foreclosure and a bankruptcy everyone is approved okay listen i do not mean to be judgey here but don't approve the clown he's a clown genetically speaking he is programmed for murder now now that ad is targeting people with bad credit who are only eligible for what are called sub-prime loans and nearly a quarter of all car loans are now of the high-risk sub-prime variety in fact so many are being issued they recently reached a 10-year high and if the phrase a boom in subprime loans is making your eye twitch with flashbacks to the mortgage crisis just wait we will get there but first let me take you on a tour of the subprime auto loan industry and we'll start with so-called buy here pay here dealers who do their own lending they've been around for years and their ads make it all look very simple how can we get you financed when others can't two reasons first we are the bank we don't have to send you or your deal anywhere the second reason we can get you financed is because we don't even look at your credit score of course in fact we don't even know what a credit score is what is a good one pg-13 640 on the verbal 710 on math 3 under par is that a good credit score we've got no idea and that's why you should trust us and look theoretically theoretically it is a good thing that car dealers lend money to people who can't get financing elsewhere but in practice these dealerships can trap people with few options into paying vastly more than a car is worth it's just one of the many ways in which when you are poor everything can be more expensive the average interest rate they buy here pay here a lot is 19 with some paying up to 29 and that that interest is on top of mock-ups and add-ons that can inflate the price of the car so just look at arlene jones she went into a chicago dealership trusting that they would help her when she first got to the quick auto lot she told the salesman she had an upper limit on price i told myself i can't afford no car over two three thousand dollars she says he was very reassuring like don't worry about it he said you can handle it in the end arlene borrowed eight thousand six hundred dollars at 24.9 percent interest over three years how much money if she had paid off the loan she would have spent more than thirteen thousand dollars on a car that was only worth about three thousand holy that is outrageous the only way it's acceptable to sell someone a three thousand dollar car for thirteen thousand dollars is if you slip a mint condition x-men issue one into the glove compartment at that point you're being generous but it it's no wonder that by here pay here loans had an average default rate last year of nearly one in three with most customers who default doing so just seven months after taking out the loan and just think about that seven months is not a lot of time if you put a seven month old baby in front of the screen right now it would not understand anything i'm saying it wouldn't even know if i was making fun of it i'll show you go ahead get a baby right now and put it in front of the screen here we go hey dummy hey you don't know that i'm mocking you do you stupid little face do you no you don't no you don't who knows about that not you you don't mind you don't mind at all see seven months is not long enough to do anything now put the kid to bed you're a terrible parent but the problem is the problem is even if you're just a few days late on a payment the dealership can repossess your car and when they do sometimes it is with little regard for what's inside when the mother went to pick up her three children at a daycare she left her nine month old in the car but when she came out there was no baby and no car i wish when you repo a car you check the car before you take it that's really just don't you know take somebody baby yes exactly don't take a baby is a good general rule for everyone whether you are repossessing a car choosing a prom date or making a selection in the nfl draft don't take a baby you don't take a baby i don't care what they did in the combine and and increasingly it is not difficult for buy here pay here dealerships to repossess your car because many now install a special device which goes off when your payment is due every five seconds the device is actually beeping at them as their way all the way taking the kids to school all the way to work it's informing them that they need to make their payment contact their lender however if they don't then the device at midnight most lenders choose midnight as their time of shut off device will not to allow that card to start okay setting aside the horror of the fact that they can shut your car off that beeping sound is unbelievably annoying anyone with a smoke detector knows it only takes about 30 minutes of incessant beeping before you've completely lost your mind i pushed the button i unscrewed the top and i smashed the whole thing with the bread maker and it's still making that sound so the only reasonable option is now to set my house on fire and once they have repossessed your car these dealers don't have to refund your down payment and they might decide you still owe the money because the car is now worth less than they sold it to you for so you can easily end up with no car and thousands of dollars in debt meanwhile the dealer can turn around and sell your car to someone else so the truth is they can make money either way and the same car can get sold this way over and over again and to prove that let me take you on a magical journey because a few years ago the la times tracked the sales of one car from a kansas city buy here pay here dealer it was a 2003 key optima much like this one it had a blue book value of five thousand three hundred and fifty dollars but in april of two thousand eight it was sold for nearly eleven thousand dollars or double its blue book value the original buyer complained of mechanical problems and refused to make payments so the car was repossessed and sold again in august before being repossessed again four months later and was then resold after just three weeks before being repossessed again from a mother of three who without transportation lost her job at walmart it was then resold again in may 2009 to an owner who complained of transmission trouble so the dealer took it back and resold it just four weeks later after which it was you'll never guess repossessed again from an owner who later filed for bankruptcy thanks in part to payments he owes on this piece of demon car but wait we are not done it was sold again that december and was repossessed just five months later before being resold in may and it was then surprise surprise repossessed again even though the owner a mother of four claims she made every payment and then according to the la times it was sold one last time before being repossessed just one month later that one car changed hands eight times in three years each time at a price double or even triple its blue book value at which point you almost feel bad for the car which presumably needed two sessions of therapy a week just to be able to start its crappy engine again now now that that is where the la times left him but we felt so emotionally involved we actually tracked that car down and discovered that since then it has been sold again repossessed again and then sold yet again and when we called the last listed owner she said it had been stolen and i really hope whoever did that drove it straight off a cliff although i'm guessing even then some sleazy lobster wound up selling it to a poor unsuspecting fish now now after seeing that you may be glad to hear that buy here pay here lending has lost market share in recent years unfortunately that is only because it seems everyone is getting into subprime auto lending now there is a surprising amount of competition to give car loans to people with poor credit so much so people who've recently declared bankruptcy are being actively targeted through the mail just listen to one bankruptcy lawyer describe what he's seen these are all car loan solicitations high interest parliament association sent to my bankrupt clients people who have already filed bankruptcy uh here's one that looks like a check and it's made out to 21 000 i guess it's going to be a used car you know with a signature and everything sent to one of my clients here's one that looks like some kind of an official certificate they encourage you to apply for a car loan even if you suffered bankruptcy car repossession foreclosure or all of the above that is a slightly weird tone of voice to use there he sounds almost excited about a bankruptcy a car repossession and a foreclosure he's like a doctor saying wow you have herpes hpv and gonorrhea most people only get one we've got the hatchery and and this feeding frenzy over subprime customers now includes big lenders like santander and gm financial they have both expanded their subprime auto financing and there are newer players like scopus and exeter who specialize in subprime lending and you might be wondering why the is everyone in such a hurry to lend money to people with bad credit i mean sure in the mortgage crisis uh they were doing that so that they could bundle those high interest loans together and sell them on wall street but there is absolutely no way that that is happening that is happening again that is exactly what is happening right now and people have actually been worried about this for a while now is there a new bubble that's about to burst in the auto sector does this concern you at all though that it could possibly become a repeat of the home loan boom do you see similarities between the housing crisis and what's going on now with used car loans is there concern now that there's going to be another subprime crisis except it's not going to be mortgages it's going to be car loans yes there is concern that this could be the subprime mortgage crisis but with cars and normally if you add the phrase but with cars to any historical event it sounds a lot more fun like the assassination of abraham lincoln but with cars sadly this is the exception to that rule now before you panic experts say there are important differences here subprime auto loans are a much smaller part of the overall economy than subprime mortgages were so even if they do go bust this wouldn't necessarily be the big short all over again so much as the direct-to-video version with brad garrett instead of brad pitt and instead of ryan gosling an actual gosling name's ryan and wall street firms insist that they have learned their lesson and have set things up in such a way that tons of loans can default and investors will still be fine but there are trouble signs for instance standards for some of the loans being sold as investments can be shockingly lacks we've seen deals come to market with uh very low fico scores and in some cases no credit scores at all yeah the loans which is amazing so some people joke you know you really just need a pulse right now to get a you know subprime auto loan so that's a good job solid set up hard punch line potentially devastating effect on the american economy top shelf comedy there it's the rule of three is what it is and behind closed doors some in the lending industry openly acknowledge conditions are deteriorating in fact when we sent hidden cameras to a debt buyers conference in vegas a few months ago we stumbled on ken shilson the head of the national alliance of buy here pay here dealers he sees trouble brewing because he thinks in attempting to keep pace with the big players who've entered the subprime industry his own dealers have been forced to issue longer-term loans with less money down at higher cost to clients who are therefore at greater risk of default and these broader lending trends are clearly terrible news for borrowers but to hear him tell it it's a great opportunity for those who buy bad debts and collect on them these people have negative equity all the way through and they're not going to be able to hold their life together for seven years you know the customer you know how to collab you got the legal expertise what's holding you back wow that is both inspirational and profoundly upsetting it's like if the song i believe i can fly merged with the rest of r kelly's life now listen listen the news the news don't google that listen the news the news that used car dealers are predatory is clearly not new but it seems these days market pressures are forcing them to be more aggressive and take more risks to the point where we may be getting close to an industry that looks like this [Music] do you need a car you can't afford a car no problem just come right on down today to crazy johnny crazy johnny but don't take it from me take it from my cousin crazy jimmy come on out there [Applause] crazy johnny oh crazy johnny i i love the smell of deals in the morning i got a question for the people at home do you have bad credits we don't care have you filed for bankruptcy we don't care is your credit so bad that giving you a high interest loan we'll basically trap you under a mountain which there's no reasonable hope of escape we don't [Applause] we've got a beautiful offer for you right now man this here is a pre-pre-pre-pre pre-pre-pre-owned 2003 kia optima jimmy jimmy you gonna tell the people what it comes with i will it comes full of loaded with four tires up to one engine and a beeping device which emits a sound that will haunt your dream does it come with anything else it does man if you check the back seat this car has a baby in it there is an actual baby in this car right now i have serious personal reservations about the situation this town is here don't focus on that look this car is worth two thousand dollars but we'll let you have it for zero down and just 200 a month for the next seven years that's nearly seventy thousand dollars no no don't don't do the actual math on that try and think of it at home like this act now and this car will affect every financial decision you make for the best part of the next decade and that is a crazy jolly prophet [Music] and the crazy thing is this piece of car is actually an opportunity for wall street too but don't listen to me listen to our accountant crazy welter come on out here whoa well it's true if you set aside the human misery this loan has the potential to cause as part of an over collateralized security this can be sold as as a as a height as a high-yield investment damn walter that has disturbing echoes of the mortgage grasses crazy the point is it is so easy for us to get you in this car why it is almost criminal it truly feels like it should be a criminal activity and yet somehow it isn't spammy that's right thank you so much for joining us [Applause]

Channel: LastWeekTonight

Views: 13,193,120

Keywords: john oliver, last week tonight, last week tonight with john oliver, auto lending, john oliver auto lending

Id: 4U2eDJnwz_s

Length: 17min 56sec (1076 seconds)

Published: Sun Aug 14 2016

Reddit Comments

[u/Clob]

This is why basic financial education is so damn important. It's not an easy subject, but even a little knowledge goes a LONG way.

[u/[deleted]]

Used car dealers aren't always looking out for their customers best interests?

This is shocking news.

[u/SuminderJi]

First of all why did she leave her baby in a unintended car long enough to a person to come hook up the car and tow it away.

[u/kurt-wagner]

This happened to me a few years out of college. Didn't care about personal finances, so my credit score was bad. My car had to have about $4k of work done, so I just traded it in for a Prius... at high 20s interest.

Thankfully, my parents helped me refinance it a couple years later (at around 4%). Now planning to save and buy my next car in cash. Terrible, but educational experience.

[u/littleshroom]

Imitation game was amazing -_-

[u/lebruf]

It is predatory but it's also fraught with losses, you're right. I consulted for a startup RTO finance company, and they needed at least 2x on their money factor to eke out a profit after all losses.

At the end of the day, it's a free market and these guys are serving a market that otherwise wouldn't be served at all due to the inherent risk of serving them.

[u/calantorntain]

In regards to that first woman and her absurd public transit commute which is only 10 minute drive away. Even assuming it's a straight shot along a 60mph highway, that's still only 6 miles, max. That's perfect biking distance. Why is biking not brought up as a viable alternative?! People sure put a lot of work into being lazy.

[u/ranma08]

Predatory lending should be regulated by the government.

[u/[deleted]]

Worked in finance your years, if the car is not for business use majority of the time do not buy it on finance.

I had this teenage call in once looking for a 4k car loan, good paying job for his age, Asked him why not pay in cash.

This was new to him, his father, all of his family members and mates all financed cars. The poor kid didn't know you car buy a car in cash.