Loan extensions: Handle with care
|Jim Henry is a special correspondent for Automotive News|
There's a loan-extension scam going around that the Federal Trade Commission says you should know about.
The agency said last week it had filed complaints against two California-based companies that advertised they would help consumers in financial distress renegotiate their auto loans.
Instead of helping consumers, the FTC charged, the companies simply kept the money. Not only that, in some cases the companies are accused of telling consumers to stop making monthly payments, which if anything served to speed up the repossession process.
The companies are Hope for Car Owners in Folsom, Calif., and a company known variously as Vehicle Loan Modification, Auto Debt Consulting or Car Loans Modification, in San Diego, according to the FTC complaints.
There are no allegations the companies in question had any connection with auto dealers or with auto lenders.
But you need to pay attention because loan extensions are not that uncommon, according to SEC documents.
Ally Financial, the preferred lender for General Motors, Chrysler Group and others, said in its 2011 annual report that loans representing about 7 percent of its outstanding total had been granted an extension or a rewrite at some point. GM Financial, a subprime specialist, said that about 22 percent of a pool of loans that were being offered in a recent sale of asset-backed securities had been granted an extension.
What should a dealer say if a customer walks in and wants a loan extension?
The FTC advises consumers to contact their lender directly, instead of paying a fee to a middleman, said Malini Mithal, FTC assistant director of the Division of Financial Practices, in a phone interview last week.
That's a good response for dealers, too.
You can reach Jim Henry at email@example.com.