California Senate Committee Approves Bill to Regulate Buy Here Pay Here Car Dealers
Yesterday, the Senate Banking Committee of the California Legislature approved a bill that will put a limit on the interest that Buy Here Pay Here car dealers may charge consumers. The bill will also place such dealers under state regulation as lenders. BHPH dealers' typically sell cars to consumers with poor credit at extremely high interest rates of 27% or more. The dealers are willing to risk non-payment because they get a down payment and upon default, they simply repossess the car and sell it to someone else. The dealers claim large losses justify their exorbitant interest rates (often 27% or more), but the losses are mostly illusory.
Ken Bensigner, a LA Times reporter, has been investigating the growth of this segment of the car dealer business. He has reported that the BHPH business is so lucrative that hedge funds are behind some of the BHPH dealer groups. A LA Times story on yesterday's legislative action is here.
I testified before the Senate Panel on behalf of the National Association of Consumer Advocates. One of my clients who bought a car from a BHPH dealer also testified. Rosemary Shahan who is with Consumers for Auto Reliability and Safety, also testified in favor of the bill.
