How America's Loophole-Ridden Auto Lending Laws Harm Consumers - ConsumerReports.org

Some states have sky-high legal caps. In New Mexico, for instance, a borrower can legally be charged up to 175 percent APR, and there is no cap if the loan amount is greater than $5,000. Oregon has a 36 percent limit for loans from banks, but financing arranged through car dealerships is exempt from the state’s usury law. 

Limits may apply to the interest rate, which covers only part of the total cost of taking out a loan, while others cap the APR, the number more familiar to consumers.

And seven states—Arizona, Delaware, Idaho, Missouri, New Hampshire, Utah, and Wisconsin, where together about 7 percent of the U.S. population live—have no auto loan interest rate limits on the books at all.

In fact, because auto lending laws vary so much, at least 875,000 borrowers across the country over the past decade have received APRs on auto loans that would appear to be usurious if they’d lived in states with more protective limits, according to a CR analysis of lending data publicly available through the Securities and Exchange Commission. 

And the real number is almost certainly higher. CR’s analysis was limited to companies that bundle and sell loans to investors as bonds, just a piece of the entire auto loan market.

“A car is one of the most expensive assets most consumers will ever own, second only to a house,” says Chuck Bell, a financial policy advocate at Consumer Reports. “The fact that states permit such egregiously high interest rates for auto loans, in the name of helping people with low credit scores, is completely ridiculous. Without strong interest rate caps, borrowers will be saddled with high-cost loans that set them up for delinquency, default, and repossession.”

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