Consumer Legislation Makes Auto Financing More Restrictive

June 15, 2009

A new piece legislation called the Consumer Credit Fairness Act is being presented in Congress that may carry serious consequences for auto financing lenders. Should the bill be passed into law, it would also affect the used car market, a sector that has already taken a serious hit the previous year due to the exorbitant gasoline prices.

The legislation would allow borrowers to avoid paying on their consumer debt, including auto loans, when they file to receive bankruptcy protection. Additionally, lenders would no longer be allowed to repossess vehicles to serve as collateral to recoup losses.

Of courses, the bill will not easily be passed in the Senate, which already rejected measures that would have allowed homeowners to reduce the cost of their mortgages through bankruptcy.

Advocates of the bill, including its authors, Senator Sheldon Whitehouse and Senator Dick Durbin, make the case that the bill would provide a protection against unfair lending practices while also reducing the debt struggle of millions of Americans. Among other things it would help keep interest rates low by encouraging lenders such as auto sellers to abide by new guidelines.

Critics are quick to point out the damage that the bill would deal to big auto lenders like Ford Motor Credit and GMAC LLC; both provide the financing needed by those who purchase from the already struggling automakers. GM, Chrysler and Ford, plus their financiers, could be shaken to pieces-something not difficult to do with declining sales and higher default rates for auto loans.

Another argument from critics focuses on the impact that new credit restrictions would have at a time when more Americans need accessible credit.

The critics of the bill warn that the legislation would restrict credit at a time when Americans need it most. The lenders, on the other hand, defend the business practices, deeming them necessary in order to protect themselves when providing money to consumers with poor or bad credit ratings.

Essentially, it may allow consumers to be rewarded if they default on their auto loans.

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Comments

One Response to “Consumer Legislation Makes Auto Financing More Restrictive”

  1. Steve on June 16th, 2009 7:41 am

    Sounds good to me. More consumer protection.
    We take losses by driving a new Ford off the lot. The value droped by half the purchase price after 20,000 miles.

    By the way
    My 2001 F-150 burned to the ground after I had the crusie control fixed. I only had liability and Ford took no resposibility. Another loss.
    check it out http://www.consumeraffairs.com/news04/2007/09/ford_fires_continue.html

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