THE DIFFICULTIES OF FINANCING A USED CAR
Credit Acceptance (CACC) is the largest and oldest major financier of subprime auto loans in the United States. Competitors exist, but they lack the scale, industry standing, and the goal of CACC to finance everybody, regardless of credit.
In short, if you would like to learn what it is like to buy a used car while in poverty, summarizing CACC’s business model is a good start. The company is a cross between lender and aggressive debt collector.
Their aggression (and the aggression of the industry) has been covered many times by local and national outlets (Forbes, NPR, NYT), and John Oliver did a 20 minute show on it that’s pretty funny (Youtube Link).
We are merely trying to summarize facts about CACC, as well as the used car financing as a whole. There is nothing new here.
It is easy to prove the following about the industry:
They entice people into predatory loans;
They scam the contract with hidden fees; and
They brutally follow up on default payments.
A Few Facts about CACC Loans
The average length of their deals is 55 months.
The average size of CACC’s loans is $20,000.
35% of all borrowers default on a CACC loan.
95% of loans had a FICO score of 650 or below or no score at all
Attractive to Dealers
The Credit Acceptance formula is so attractive to dealers because they receive an up-front advance from Credit Acceptance for each sale, regardless of whether the borrower pays back their loan. The dealer is also eligible to receive money from later loan payments.
In 2019, CACC partnered with 13,339 dealerships across the United States, and they financed 369,805 cars. Their net income was $656 million.
Viable on Wall Street
CACC has a 35% ROE (Return on Equity) over the past 10 years. That is over 2x the return on equity of the S&P 500. This makes it enticing to value based investors.
Holders include Wells Fargo, Calvert, The Hartford, American Family Insurance, Mutual of Omaha and J.P. Morgan Chase & Co.
Here is a nice blog post titled, “Why Credit Acceptance is Brilliant.”
Investors will object, at times, because Credit Acceptance so clearly relies on hidden fees, wage garnishment, working the judicial system, and aggressive repossession. There is fear that they will eventually incur regulations, but the Consumer Financial Protection Bureau has been slow to act.
Vehicle Service Contracts
About half of Credit Acceptance deals involve Vehicle Service Contracts (VSC) which costs between $1380 and $1580. The dealer earns $295 to $385 for selling the VSC.
According to the sources already mentioned, VSCs do nothing. The VSCs offer zero protection in any way.
The VSC is generally considered a price increase without value by consumer watch dogs. Many Credit Acceptance car buyers never actually see the paperwork associated with their VSC aside from a small box on the RIC, a copy of which they may also never receive.
Every predatory lender has fine print like this. Contracts, warranties, and such that do nothing are the industry standard.
Wage Garnishment
Plainsite.org, a nonprofit advocate for transparency, broke down the insanity of CACC’s wage garnishment. In essence, the company relies on wage garnishment to fuel their business model. They wrote,
The company’s business model has severely impacted impoverished individuals all over the United States, but especially in Detroit, where between 2008 and 2016, the company’s share of the Michigan 36th District Court’s docket increased by nearly a factor of ten, from 1.39% to 11.37% of all civil lawsuits filed.
In 2017, not yet over at the time of this report’s writing, Credit Acceptance’s share of the 36th District Court’s docket is at an all time high of 11.97%, surpassing even the company’s share during high rates of litigation in the late 1990s. Still more incredible is the sheer number of lawsuits the company is involved in: at least 153,842 non-federal legal actions that we could find nationwide since 1995.
The Capital Forum ran a similar piece in December of 2016. They summarized,
The company (CACC) relies on the fact that most lawsuits it files will run to a default judgement, to the extent that it will not bring cases to trial if a borrower contests the case. Because of this, the company’s lawsuits show many problems, including failing to substantiate the amount due with documentation and potential robosigning on affidavits in use as proof of the debt. Once a judgement has been obtained, there are cases of seekinig garnishments on consumers who never received notice of the lawsuit, consumers who had entered a payment program, judgements ore than a decade old, or consumers who had been induced into waiving statutory garnishment protections.
Repossession
A common practice for CACC is to pester the debtor to sell their car to pay it off. When the debtor agrees or the car is repossessed through other means, CACC flips the car for quick cash. Thus, the borrowers are left with thousands of debt and no car.
Hence, CACC and their industry are essentially zealous debt collectors, as major outlets have described.
On that note of harassment, many of the sources linked do a good job describing the harassment of repo men, but plainsite.org summarized well,
In addition to telephone harassment, Credit Acceptance has an enormous problem with out-of-control contractors hired to repossess cars. That’s according to Credit Acceptance, which sued one of them in federal court in 2016 when the contractor started repossessing cars and keeping them.
Credit Acceptance customers have reported repo men who have damaged vehicles, garage doors, air conditioning units, municipal poles, and in one notable instance, a customer alleged that repo men working for Credit Acceptance committed blatant assault that could be fairly described as a hate crime.
They provide the citations to the court cases on their site, if you would like to see them.
Summary
Credit Acceptance and their competitors rely heavily on scams, which they like to call warranties or vehicle service contracts. Then, they entice the desperate into lengthy and expensive loans. Finally, their business model revolves on the judicial system to turn a blind eye to repetitive legal violations.
Again, this is not supposed to be shocking or interesting or investigative journalism. We are merely trying to lay down well accepted and well documented facts.
My Takeaway
There are stories, countless stories wrapped up in a car, let alone hundreds of thousands. There are trips to the lake or the hills, across town, Uptown, and don’t forget the ride back as the streetlights strobe.
Credit Acceptance has millions of stories. Some of them are bound to be just fine. Some guy needed a car, but he had no credit. He got the car, there was no vehicle service contract, the deal was kept to 30 months, and he paid it off on time. There are plenty of those stories.
But, there are also millions of stories of terror. Tonya Coker commented on a consumer protection website,
“On July 10, 2015, when I got my paycheck, a garnish was taken out of my check saying I owed Credit Acceptance for a car I brought back in 1999. The car was repossessed in 2002, and I did not receive no information about what happened to the car or anything. I did get no court paper about being sued I just received my paycheck a garnish was coming out my check. What can I do about this?”
If you need more examples, CACC has 55 one star ratings to accompany single 3 and 5 star ratings on Consumer Affairs. If that does not do it, here is the Better Business Bureau with 152 reviews that are almost entirely 1 star.
Why This Matters
I’m not trying to vilify CACC, but if there is any physical representation of what WTW stands against, it’s Credit Acceptance.
It’s a problem worth fighting. It matters to people, it affects people, and it is workable. It is a problem worth fighting, and every time we donate a car directly to a person, we save one person from CACC.
We cannot fix the subprime used car industry. Hell, we cannot make a dent.
But, for us, that’s no problem. One car at a time.
