Unscrupulous sales practices are one reason why I have little to no sympathy when spot deliveries blow up in the dealer’s face.
I was wondering if you were going to chime in at all 
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Like a moth to the flame, haha.
Captive banks are generally open to taking on more risk than traditional brick and mortar banks, who are usually more risk averse. Most financial institutions with even a semi-thorough underwriting process and strong quality controls should be able to weed out the majority of applications with questionable or false documentation and information. If it were me I would also look for trends and consider severing relationships with stores who consistently submitted applications with unqualified applicants.
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With new car sales slumping, they are trying to sell as many as possible, even if it means lending when they shouldn’t be.
I purchased and financed over 15 cars, I don’t think they have ever checked my income
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The credit bureaus sell different flavors of income estimators that run info from your credit report through an algorithm to ballpark your income and then sell the result of the computation along with a credit report.
I don’t know how widely these services are used in auto lending, but there are other types of lending where it’s common to quietly validate/ballpark your income through a service like this at the time the credit grantor pulls your credit.
https://www.experian.com/consumer-information/income-insight.html
And the irony is that Ally use to be GMAC…lol
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I cannot read the article as I’m not a subscriber but two questions come to my mind:
- how does one make living for $660/month?
- having such low income how one comes to conclusion they need a new-ish used car?
I feel sorry for whoever took this “deal” but at the same time it only shows how important natural selection was and how badly we miss it these days. You can’t help someone who doesn’t want help, you can’t educate someone who doesn’t want knowledge, you can’t talk someone out of their bad decision if they do not want to listen.
Dealership most likely took advantage of her while signing but somehow she was smart enough to find a “reporter” she could whine to about her poor decision making. Adult people should bear the consequences of their decisions, otherwise situations like this would be a common thing.
Probably earning cash income
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Article:
When Mirna López bought a used 2018 Nissan Pathfinder in May, she got a car loan with a monthly payment of $809. Her monthly earnings were about $660. Normally, lenders wouldn’t approve that. But an employee at Mac Mitsubishi, a dealership in West Hartford, Conn., filled out her loan application and stated she made $7,833 a month, according to Ms. López and a copy reviewed by The Wall Street Journal. Ms. López, 65 years old, said she didn’t realize that until months later.
Consumers are facing rising prices for cars and trucks, and relying on debt to buy them. Inflating a borrower’s earnings can allow a dealership to close a loan that otherwise wouldn’t happen.
Some dealerships around the country are dressing up car-loan applications with fake, inflated incomes, according to consumer lawyers who say it is a growing issue. Certain large lenders have cut back on some safeguards that could catch the forged applications, in much the same way some mortgage lenders stopped double-checking applications in the run-up to the financial crisis. Federal and state authorities have sued dealerships and lenders over these practices.
Sometimes, borrowers lie about their earnings. But some dealerships concoct numbers without telling the customers, according to lawsuits and interviews with customers and lawyers. Those borrowers often default on their loans within a few months, destroying their credit. “The consequence for a lot of people is to ruin them financially for five to 10 years,” said Richard Feferman, a New Mexico lawyer who has sued dealerships and lenders in nearly two dozen such cases.
The scope of false applications is hard to quantify. PointPredictive, which sells software to detect loan fraud, estimates that more than a fifth of auto loans have inflated incomes. The company examined loans made over the past four years where lenders obtained borrowers’ personal records, and compared those with the income stated on applications. Its data can’t distinguish who is responsible.
Dealers and lenders can ask borrowers to provide documents such as W-2s or pay stubs. Over the past few years, though, some subprime lenders have stopped checking for them, according to S&P Global Ratings, partly in response to dealers demanding faster decisions.
Auto lenders verified income on about 7% of their loans on average since 2017, according to a Journal analysis.
The share of loans going delinquent soon after they are made is rising, particularly among subprime loans, according to credit-reporting firm TransUnion. That can be a signal of fraud, said Satyan Merchant, senior vice president of TransUnion’s auto business.
U.S. consumers held a record $1.3 trillion of debt tied to their cars at the end of September, according to the Federal Reserve Bank of New York, up from about $740 billion a decade earlier.
Buyers visiting a dealership typically disclose their income to a salesperson or an employee in the financing office. The dealership electronically sends a loan application to banks, credit unions and the finance arms of car manufacturers, which decide whether to fund the loan.
The problem loans often start with borrowers making bad decisions about what they can afford. Sometimes, borrowers don’t read their loan application or final contract. But dealerships can compound the trouble. They can rush borrowers through the process or show them only a partial copy of the application, according to lawsuits and consumers. Sometimes, dealerships will fill out one application with correct information and submit an incorrect one to lenders. Some borrowers, including Ms. López, said their dealership told them they could return in a few months and refinance into a lower-interest loan, only to tell them later it wasn’t an option.
Dealerships now make more money arranging financing than selling vehicles. If a car loan goes bad, it isn’t usually the dealership on the hook. When a borrower defaults, the lender can repossess the car and try to resell it. Often, though, that isn’t enough to cover the borrower’s unpaid balance, and the lender can write off the loss and can send the borrower to collections.
The National Automobile Dealers Association, a trade group, said lenders can make dealers buy back a loan if they can prove the dealer committed fraud. A spokesman for the group said there is no evidence that income fabrication is a systemic problem.
The Consumer Financial Protection Bureau oversees auto lenders but not dealerships. The Federal Trade Commission last year accused dealerships in Arizona and New Mexico of making up car buyers’ incomes. Attorneys general in Delaware and Massachusetts fined Santander Consumer USA Holdings Inc. in 2017 for allegedly failing to catch income fraud at dealerships, but didn’t charge the dealerships. General Motors Co.’s AmeriCredit arm verified incomes on as much as roughly 70% of loans in some bond pools, according to the Journal analysis. The auto financing arms of CarMax Inc. and Ally Financial Inc. verified income on less than 1%. Some of the lenders said income verification is just one of many ways to catch potential fraud and that they have other safeguards.
The Journal analysis encompassed more than 6 million prime and subprime loans that were packaged into bonds and sold to investors by 10 lenders that disclosed such data through Finsight, which tracks bond deals.
Ms. López’s husband, Ramón, spoke with the bank that held her loan a few months after she got it. It was then she found out her application was wrong, she said. The Lópezes’ monthly earnings are still far below the income stated on the application even if Mr. López’s earnings and other income are factored in.
Ms. López said she didn’t closely inspect the application at the dealership because the financing office told her to sign quickly and took back the paper. Ms. López speaks little English, the language on the application.
This month, at her attorney’s advice, Ms. López left the car at the dealership one night after it closed. Her attorney sent a letter to the dealership and the bank stating she is revoking acceptance of the car due to fraud. A lawyer for the dealership said Ms. López’s allegations aren’t consistent with the company’s business practices. A spokesman for the bank, BB&T Corp., said it couldn’t comment on a customer but that it would terminate its relationship with any dealership where it found “a pattern of false loan applications.” BB&T has since been renamed Truist Financial Corp. Grace Pazdan, an attorney at Vermont Legal Aid Inc., said she has had a number of clients whose car-loan applications contained inflated income. She is trying to advance state legislation that would require dealerships to provide buyers with their full loan application at the time of purchase.
Baxter Hansen of Gastonia, N.C., has been paying $493 a month for a Kia Sportage she bought new two years ago. Ms. Hansen, 67, said she didn’t know her application said she had a monthly income of $4,800. Ms. Hansen, a stay-at-home parent for most of her life, had close to no income at the time. She is suing the dealership. Capital One Financial Corp., which approved her for a $28,000 loan, said it encourages customers who are facing financial difficulties to ask the bank for assistance. A lawyer for the dealership, Kia of Gastonia, and the former owner didn’t return calls for comment. Ms. Hansen started working at Walmart. She says she hopes to pay off the loan in about 3½ years.
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very interesting and makes you wonder about other companies if 1 is doing it… yikes!
Subprime lending in areas with little to no access to public transportation is a smoking hot market people have made a killing on. Those individuals in those markets will pay their credit card minimum payment first, then the car, then the house. That’s right, the car will come before the house. You can’t get to work to pay the minimum credit card payment without the car.
Logic #1: - I have little to no income so I’ll take a loan for a new to me car and we’ll see how it pans out…
Logic #2: - I don’t know/I don’t understand so I’ll just go ahead and do/buy it.
Logic #3: - I’ll sign, that means nothing, Amazon takes returns so I’m sure this can be reversed as well.
Logic #4: - My wife with no income who barely speaks English started to park a new car on our driveway. Why would I bother to ask now? I’ll wait few months!
Logic #5: - I don’t understand, I’ll better sign it quickly just in case.
Pretty much all the above combined. I have “close to no income” so I’ll go to a dealership to see what new car I can get. I’ll sue them two years later.
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Oh, i get it…what she did was ignorant…but what they did was criminal. You see the difference, right?
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Exactly. I look at the situation that as long as the other person is of sound mind (meaning they do not have an illness like dementia or Alzheimer’s), they can get whatever car they want even if it is a bad financial decision. With that said it is not my job to lie on their behalf, knowingly or unknowingly, to help them achieve it. If they want to try and get approved for a $1000 payment while they make $1200 a month, let them hurt their credit or financial future. It is not my duty to judge their actions since everyone’s situation is unique.
There is a good probability an employee (sales person) committed a fraud felony when filing the application - if so he/she should be held responsible for it.
Most likely the financial manager didn’t do or didn’t care to verify the information on the application. Probably there were (or still are) no proper procedures at the dealership to avoid such situations in the future. Lender should terminate cooperation with them for that reason.
Unless some sort of the mental illness or limited sanity or decision making capacity situation had place it takes no responsibility off the back of a person who signs such paperwork. It isn’t one signature at the sales desk to make. That’s multiple documents you sign at with the financial manager desk to get a deal like that closed and it takes at least half an hour (highly optimistic) if you do not come pre-approved. If nowhere throughout that process some sort of red light comes up in your mind to realize you shouldn’t make it than it’s on you.
I can have all the empathy for the people taken advantage of due to their illness or lack of sanity.
I refuse to have any mercy for the stupid.
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As someone who works with F&I at dealers fairly closely I agree there’s quite a bit of choke points that should prevent things like these happening by accident.
That being said, they/we are not qualified financial advisors nor is that what is tasked. In the end the decision to approve an application for credit falls on the lender whom failed to verify information provided.
The details we know in that particular instance point to wholesale fraud on the part of the selling dealer and it’s representatives and rightfully should cost those responsible their job at the very least.
I always pull a Milton Berle: I’ll show you just enough to win. I did this to Chase earlier this week.
This is interesting conjecture. Only the captive (plus maybe US bank) is leasing, and that portfolio (including risk profile) is managed differently. I would argue on loans, the captives are way too conservative trying to get the A paper that is subvented, and too risk averse on the other tiers that pay a much better margin when they perform. Other lenders (eg local banks big and small) have different risk profiles, but what’s most different is they are looking at performance of N=1, not all of the leases/loans of that type, for that amount, in that region.
What do you think is in those Auto Enhanced credit scored?
Over time, by your rate of spend/repayment of loans, I can model your income. I know where you live (though not necessarily where you work) and what your job/category pays. I can get other data about you through third parties like Lexis-Nexus and correlate. So there are third party products and services to fill in the blanks, but the credit bureaus model it out as best they can with what they have (a lot).
Of course it was a Mitsubishi store.
I have the opposite problem at my dealer. Our online credit app caps income at $999,999 per year where it is not an everyday problem but every now and then I have to tell people making more than that to “lie” on the credit app.
But more to the point, is most likely the F&I manager who will inflate the income since they can see the applicant’s credit history and what will get them approved by a bank. There are a few people who lie on the credit apps by either making up income or including spouses, parents, etc. But as electic said, it is up to the lender to verify the information provided and red flags are typically raised in these situations. For example, I see deals go into manual review if the customer’s car payments changed from $200/mo to $1000/mo or if they never had a payment before. So I have a feeling there is more to this story than someone submitting an app with an inflated income since someone making $660/mo will have a very limited credit history or high revolving credit.
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