Correcting Consumer Reports
On July 22, Consumer Reports published an article focusing on the new anti-consumer, all-in rate cap that Illinois imposed on its consumers earlier this year.
The author reached out to AFSA, asking some common questions on rate cap legislation. AFSA’s Danielle Fagre Arlowe responded with clear, content-rich answers. As has become commonplace in the media, the article takes facts and figures to fit the narrative that they’ve decided they want to spin. Consumers are used to this kind of journalism by now, but the author didn’t even include any portion of AFSA’s responses. In fact, the only individuals with direct quotes are so-called “consumer advocates.”
Consumer Reports may care little for even handed coverage, but we’re happy nonetheless to share the questions that were posed to AFSA, and our answers:
Does the Association oppose the 36% cap to motor vehicle retail installment contracts as defined under the PLPA?
The problem is using an APR other than the universally disclosed Truth in Lending Act (TILA) APR. Using TILA APR allows consumers to compare like products. We do think APR is confusing for relatively small loans of less than a year—because APR presupposes loans of at least a year and because the cost of these loans can be quite low where an “APR” appears high—but for vehicle finance, TILA APR is the appropriate measure, and nobody in the mainstream opposes TILA APR of 36% for financing the purchase of vehicles.
A letter the Association co-signed in January said that the PLPA would make one-third of Illinois adults ineligible for installment credit, if it were passed. How many Illinois adults do you believe will be unable to obtain financing to purchase a motor vehicle?
We don’t have this kind of vehicle finance data, but we believe the problem with this law for vehicle finance is that consumers won’t be able to refinance loans with beneficial terms (due to a proposed $4,000 refinance limit regulation under the PLPA) or potentially be able to purchase popular protection products, like GAP, which covers the balance if your car is totaled.
How many loans do dealers represented by the Association make on an annual basis with terms that would exceed 36% APR as defined under the PLPA?
The American Financial Services Association does not represent auto dealers. We represent the vehicle finance industry. The dealer is the original party to the contract with a consumer, and then a financial institution acquires the contract from the dealer. AFSA represents the entire vehicle finance industry, including banks and non-banks, who finance contracts from superprime to subprime consumers. The only types of financial institutions who we do not represent are credit unions and title lenders. [We do not equate the two, by the way. But in both cases our interests are inconsistent.] We do not have access to our members’ rates and terms on contracts.
Anything else you would like to add.
This is a solution in search of a problem. The vehicle finance industry is one of the most competitive industries anywhere—there is tons of competition to finance vehicles. And for consumers with lower credit ratings who want to finance a vehicle, there is still lots of healthy competition. Consumers lose when you reduce the number of companies eligible to compete for their business, or eliminate products available to lower credit tier consumers. Also, proposed PLPA regulations would prohibit the refinancing of a retail installment contract above $4,000. Refinancing can lead to lower rates and lower payments for consumers—why would anyone want to prohibit that?
In Illinois, tens of thousands of consumers are being denied access to safe, affordable credit, in most cases to meet urgent personal finance needs.
If a publication that claims to advocate for consumers can’t–or won’t–get its facts straight or cover the issue fairly, it’s not a surprise that it can’t see an anti-consumer issue when it’s right in front of them.
July 23rd, 2021
