About That Consumer Reports Story
A few folks may have seen the Consumer Reports article regarding consumer lending in the vehicle finance space. The American Financial Services Association provided the publication with extensive comments and materials that, were they used, might have lent a more balanced and accurate article. Consumer Reports also declined to share its research parameters and dataset that it wanted us to comment on. AFSA was unable to verify the accuracy of the information described in the article. Still, our answers to CR questions totaled almost 1000 words in length, along with links to additional resources they might have used. Almost none of it was.
Similarly, Consumer Reports seems unable to even accurately describe its own process, claiming that there is “very little data” regarding vehicle lending and auto finance. That simply isn’t true. CR used only one Securities and Exchange Commission data base to track three years and almost 1,000,000 loans, But Consumer Reports could have also accessed decades of data and regulatory filings at numerous federal and state agencies regarding vehicle finance, industry reports, court records, even trade publications that cover such issues every day. There is lots of data, only not the kind that is helpful to Consumer Reports to create the narrative that it chose from the outset to create.
Even when Consumer Reports cites data, it misrepresents it. For example, they cite “common” problems with auto loans. But in one case, the examples they provide make up less than one percent of the total pool of more than 800,000 loans. Another example is based on less than 1.3 percent of the total pool of loans. By any statistical standard, those figures do not represent “common” occurrences.
That said, however, we offer several points on the issues Consumer Reports chose to focus on:
First, the vehicle-finance industry is highly competitive; consumers can seek financing from national and local banks, credit unions, directly from auto dealers and indirectly from a host of nonbank lenders. For consumers with good credit and those with lower credit scores, there are robust choices to finance a vehicle.
It is also important to keep in mind that a consumer’s credit score is not the only measure of credit worthiness. Creditors consider income, the applicant’s other expenses, and the type and value of collateral when underwriting. Another point CR glosses over: lenders have widely different risk exposures and experience different pricing when sourcing capital. These factors explain why a small finance company offers different rates than a captive finance company or an international banking giant, for customers with comparable credit attributes.
We believe it is the consumer who is in the driver’s seat to choose among these options, and it is consumers who select which terms best suit their budgets. Consumers understand that rates will vary from creditor to creditor, which is why so many of them “shop” for car loans from multiple lenders. They have ample opportunity to research and seek the best vehicle financing they can find and afford. This is the same advice, by the way, endorsed by Consumer Reports in its guidance to consumers seeking to purchase vehicles.
Second, the auto-finance marketplace is also highly regulated. AFSA member companies comply with federal consumer-protection and finance regulations and 50 different sets of extensive state-mandated consumer protection and finance laws.
Third, consumers have many, many resources to help them navigate the purchase of a new or used vehicle and to empower them. AFSA and its members support two free educational programs accessible to all consumers, which we also shared with Consumer Reports:
- AWARE, or Auto-Financing 101, is a free program operated by AFSA, the National Automobile Dealers Association, the National Association of Minority Automobile Dealers, and the American International Automobile Dealers Association. It provides consumers with an easy to access road map for seeking vehicle financing, including the ability to print out a wallet card that they can bring to the dealership or creditor so they can ask the right questions as they decide on the best financing options.
- AFSA’s educational foundation operates the free MoneySKILL personal finance program, used by more than a million students and available to nonstudents seeking a better understanding of personal finance, including financing a vehicle.
The upshot to all of this? The vast majority of consumers have many options for vehicle financing. Many get great deals in a competitive marketplace. Other consumers, with less than stellar credit, also have choices to ensure they can purchase the vehicle they need, with terms that they are confident they can meet. Of course, there are bad actors and unexpected circumstances, but AFSA and its member companies have consistently stood on the side of consumers, working to ensure they have access to the credit they need and that they are treated fairly, ethically and with respect.
October 28th, 2021 by Dan Bucherer