SACRAMENTO BEE EDITORIAL: State needs to put brakes on 'Buy Here Pay Here'
Some people with lots of money find endless ways to pick the pockets of people who have
little.
Consider the phenomenon of Buy Here Pay Here used car lots, as described in a Los Angeles
Times series that appeared last week, part of which appears in Sunday Business in today's
Bee.
The pattern is predictable: People who have low-wage jobs and bad credit need a car. Buy
Here Pay Here dealers sell used cars with high mileage at a premium, lend at high interest
rates, and insist that customers make their payments at the lots. When customers miss
payments, dealers repossess the cars and resell them, over and over.
Forget the image of the unctuous used-car salesmen. Increasingly, Buy Here Pay Here lots
are owned by publicly traded corporations, investment houses, and payday lending chains,
which buy Buy Here Pay Here lots as a hedge against regulatory crackdowns on their shady
practices.
The Times cited a 58-year-old restaurant manager who bought a 2005 Ford from a J.D.
Byrider lot in Visalia. She must drive to the lot every two weeks to make her $180
payments. Her interest rate is almost 22 percent. She will have paid $18,000 by the time
the four-year loan is paid off.
J.D. Byrider is a chain that operates in 29 states. The owner is Altamont Capital Partners, a
Palo Alto private equity firm whose partners have pedigrees at some of the nation's top
investment companies.
The home foreclosure crisis worsened when Wall Street packaged subprime mortgages and
sold them as securities. Now, in a never-ending quest for more money, money managers are
bundling car loans on jalopies, and peddling them as securities.
The Times report noted that the underlying loans are being repaid by people whose credit
often is so bad that they cannot get credit cards. Credit rating agencies don't seem to mind.
They are bestowing stellar AAA ratings on the securities.
Cars are lifelines. If hourly workers' vehicles break down, they cannot get to work and end
up unemployed.
People who live from meager paycheck to meager paycheck pose a greater loan risk than
middle- and upper-middle-class borrowers. Honest business people ought to be able to
charge rates commensurate with risk. But there is a difference between hedging against the
risk of lending to people who have little money, and preying on vulnerable people.
Undoubtedly, well-meaning legislators will focus on the issue in the coming year.
(NOTE: This editorial was originally published Nov. 5, 2011.)