The heart of the problem is people wanting to avoid paying taxes when flipping their lease for a profit. This is a state government issue not the oems issue. The oems are for profit businesses so I am not sure why you would expect them to look out for your best interest. Remember, they tried to take you to the cleaners when you leased your car. Why would they want to give you back money at any point of the lease?
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Are the majority of leasees even aware that a 3rd party buyout is an option? I mean, clearly enough people know that the banks are making it more complicated, but I actually assume most people don’t know (and thus no harm comes to the brand for doing this).
Mazda leases are handled through Toyota Financial, so I’d imagine any buy out rules that apply to Toyota also apply to mazdas.
GM officially announced it a week or so ago that it would start 7/1 internally. They decided to enforce it early as of Monday this week.
I’m not really concerned with the temporary market condition of positive lease equity (Volvo lessee), but I am concerned for consumers who due to a change in circumstances need to get out of a lease early. Limiting the consumer to a very small segment of the used car market (franchise dealers) to get out of the lease will make a bad situation even worse. A somebody with negative equity at free market trade-in rates is going to be even more underwater if a dealer knows they have very limited options to get out of the lease. (Think non-metropolis)
I’d like it fixed at the state tax level rather than non-contractual bank policies. If there was an easier to use version of California’s 10-day no sales tax law, then 3rd party dealers could handle the lease buyout for the customer and deal with the sales tax waver. It’s really the state’s tax laws that are allowing leasing companies to do this.
While yes I understand it’s the bank’s car, I believe in most years these policies will result in demonstrated consumer harm. It’s in the state’s interest to protect the consumer in cases like this.
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CFPB affirms lessees have no right to trade or assign their purchase option to a third party.
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That appears to be nmac affirming that, not cfpb.
I drafted something.
Dear Lessee:
FYI, a number of our customers have been enriching themselves by exploiting our overly-generous policies regarding what we currently allow them to do with our property.
If you want to get in line and take money that isn’t yours, you need to act quickly before we plug this gigantic hole in a couple of weeks.
We honestly don’t know what we were thinking, but our loss is your gain… but not forever.
DON’T WAIT!
Love,
Lessor
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I don’t agree with their assessment, primarily because you can’t simply stop renting by returning the keys. It is not protecting consumers to you have potentially large liability to end the lease early, yet restrict the right to shop around for the least damage.
But also note I don’t suggest banks must be forced to sell their cars to dealers. I’m only suggesting states don’t charge sales tax in that circumstance so consumers can simply buy the car at their contractual (based on depreciation, etc) buy-out without paying sales tax.
As a former options trader, and financial professional for 25+ years, stock options are nothing like car leasing. However, leasing a car is like getting a free call and put option on the market value of that vehicle. Because of recent market abnormalities, that call option has been taken away by many banks…of course, before this year, positive equity leases were the true unicorns.
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I guess this is where I’m confused (and, admittedly, I’ve never leased). It’s not like you as the consumer get charged EXTRA for wanting to get out of a lease early, right? You “simply” don’t get use of the car for the originally specified time period. Having to pay the contractually agreed-upon total amount is not a penalty. And not getting to use the car for the specified period (or for the allotted mileage) is not the fault of the bank. So not sure what it is that the consumer need to be “protected” from, in this situation.
I’m specifically talking about people wanting to get rid of the car, not buy it outright. These people are being ‘penalized’ and being ‘charged’ extra by either needing to (a) pay sales tax on a car they aren’t actually intending to use/keep or (b) being locked in to below market trade-in values at franchise dealers. We are in good times now, but imagine someone already being upside down $3k in actual value, but in reality down $6k because franchise dealers know they can lowball the offer.
I’d agree if you could just stop making payments and return the car it would be simple. I don’t have a problem with the contractual buy-out amount, but I do have a problem the consumer is essentially locked in on valuation since he can no longer shop around.
May not be the fault of the leasee either, but that’s besides the point. There’s no reason for the states to assist the lock-in to franchise dealers when trying to buyout a contract. Making it easier to sell a lease purchase to a 3rd party dealer by waving sales tax would assist consumers.
Where have you all been when this policy allowed tons of negative equity being rolled over and over, drawing the consumer, who didn’t even realize that was happening? Had it been in force all the time, may be consumers thought twice of jumping out of the lease 1 year in because they didn’t like the car at the cost of thousands of neg equity.
It wasn’t for consumer own good before, and it is not for consumer own good now.
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I’ve always been in favor of laws/regulations protecting low-information consumers. There’s a lot of pro-dealer, pro-industry sentiment on this board when it comes to consumer issues, but I’m not on that side. I don’t believe that consumers need or have the ability to be contract lawyers to parse the terms of an agreement, and the state has a role to play to prevent consumer abuse.
I’d argue that removing the ability to minimize negative equity via shopping around for trade-in offers will make negative equity rollovers worse.
I’m sure this happens a lot, but there’s also other times beyond the consumer’s control (layoff, illness, etc) where this recent change by leasing companies is going to hurt.
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I think there’s a lot of “read the contract your signing and be responsible for your own interests” sentiment here rather than pro-dealer/pro-industry.
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The only way this is beneficial in a finance is it’s your car to dispose of however you want. That won’t stop negative equity though. Most cars, outside of this current car shortage era are upside down for the first 3 years anyways. The only way that’s usually avoided is to put a good chunk of change down. In other words, the likelihood is high the person suffering layoff, illness etc is going to be up a creek without a paddle in a buy too. They’re still going to have to go out of pocket in all likelihood to dispose of it. They just have more options to do so.
That all being said, it’s also their car and titled to them. It’s not a 3 year rental. The bank takes all the risk, even if they have to repo the car and take a loss. It’ll affect your credit either way. Nobody complains when the bank has to bend over when you return it. That’s fine. When the bank tries to protect its assets, all of a sudden it’s an issue?
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I can assure you there will be class action lawsuits about this and some law firm is gonna make a killing while the lease signers will each be eligible for an $18 gift certificate to Starbucks.
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You are fairly mistaken in this assessment. I dislike how the car industry is taking advantage of less-informed consumers even though that gives me my paycheck through trading delinquent debt most of which lately have been auto deficiencies.
But don’t mix that you wanting the fair only when it’s good for the consumer. It’s the same case as everyone should have a house slogan before 2008 and screaming after that banks should have known not to give our NINJA mortgages.
Same as there should not be most consumer finance products because there will always be a group of consumers not educated enough taken advantage of.
Start with financial education in school rather than laws to protect low-information consumers. They need education and not protection. Most of them don’t even know such protection exists.
It has happened before and will happen in the future. In that case, they just give back the car and end up with a deficiency which in leasing is at least smaller vs new car loans. And btw, currently, there a ton of Federal and State programs to help people make payments if they fell on hard times starting with mortgage/rent/studenloans deferrals. So if someone has a hard time now they can defer payment a lot easier than any time before. But we are talking about people getting to the point trying to lease a car just to try to flip it. Reminds your 2007 much?
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Yes, and the regulars here are some of the most sophisticated consumers and not at all representative of what the typical consumer is capable of in understanding the contracts. As we all know those customers not understanding what a particular deal is truly costing them subsidizes us here.
My opinion only of course, but the ‘read your contract’ argument seems to come in to play defending legal yet morally questionable industry tactics, especially preying on the financially vulnerable or underinformed.
That’s the crux of my argument. No reason why the banks would want this to happen, but also no reason why voters and regulators should be in favor of assisting the bank. Providing tax waivers for “buy-out to trade-in” would be a good consumer-friendly policy and not impose on any rights of lessors. It would only correct the market-imbalance of the sales tax limiting choice for consumers.
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And typical consumers should do better. Giving people an out from being responsible for their personal well being doesn’t put them in a better place, it just trains people that there aren’t consequences so why ever bother?
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