Whether you lived through the mortgage lending crisis of 2008 or just saw the 2015 Oscar-winning movie about it, The Big Short, you know it affected millions of people and contributed to the recession of 2008. While the details of the crisis are complicated, one factor that led to an increase in consumer debt was the drastic increase in subprime mortgages offered to homebuyers from 2004-2006. Many of these low-quality loans were adjustable-rate mortgages which the borrowers could not afford to pay when the interest rates eventually ballooned. As home prices declined and borrowers could not refinance their mortgages, many had to foreclose on their homes. This, combined with other financial crises, had far-reaching effects, including job losses, high household debt, and unsellable houses on the market.
One would think we would learn from these mistakes, but it appears that we may be allowing a similar problem to unfold in the auto loan industry.
Fraudulent Applications Add to the Problem
According to a study conducted by data analytics firm Point Predictive, auto loan fraud is at an all-time high and may top $6 billion in 2017. So, how is this related to the housing bubble crisis? Part of the fraud, according to experts, is that buyers are being approved for auto loans they cannot afford. In some cases, dealers and lenders are lengthening loan terms and loosening their standards in order to approve buyers who wouldn’t normally be approved.
In an increasing number of cases, however, fraudulent applications are being submitted in order to sell more cars. False information about the car buyer may be entered—without the buyer’s knowledge—or the value of the car being purchased is misrepresented. In many cases, a few employees are perpetrating the fraud for individual gain. While it appeared that we were experiencing auto loan growth as a sign of improving economic times, it now seems that much of that growth is due to fraud. Like the mortgage lending crisis, these car buyers are not likely to be able to continue making payments and may eventually lose their cars.
Auto Loan Fraud Not Likely to Lead to Crisis
While this fraud, even if it does reach predicted levels, will not lead to a major national recession, car buyers should still pay attention. If you are looking to buy a car, make sure you are only borrowing what you can afford to pay off. If you are approved for more than you can afford, you may be the victim of fraud and you will pay in the long run. Always check your loan application before it is sent to any potential lender to make sure the information is correct, your signature on the application means you agree to the information contained on it. If it is wrong, the dealer may claim you committed the fraud. If you have questions, consult one of our consumer attorneys.
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