Over on the Credit Slips blog, Elizabeth Warren posted an email from a bankruptcy lawyer who was stunned at the horrible deal one of her clients got from Wells Fargo on an equity loan on a car.
Here’s the story:
Today I was interviewing one of my clients and she said that one of the loans she that she had should have been illegal. I asked her what she meant and she said that the loan she received should never have been permissible. Turns out she had a car loan with Volkswagen with an interest rate of about 3% and a loan balance of approximately $23,000.00 Because she had her home mortgage with Wells Fargo (or at least that is what she thinks is the reason) she received an offer from Wells Fargo for an equity loan on her car! (i.e. just like a home equity loan except the collateral is a car instead of a house) I had never heard of such a thing before. In any event, she agreed to do the deal with Wells Fargo (she needed to money to pay her bills and was much too embarrassed to go to family and friends) so she agreed to the refi and at closing she received $4850 in cash, Wells Fargo received $1300 in fees and the total amount of the debt went from $23,649 (the amount owed VW on the original car financing) to, hold on to your seats, $48,852! The interest rate on the new loan was a mere 16.24% (remember the old rate with VW was approximately 3%). Of course she defaulted and Wells Fargo repossessed the car and is now seeking its deficiency balance. Amazing to see an equity loan on a rapidly depreciating asset but when she received the loan Wells Fargo told her that she had paid down her car loan so quickly she had accumulated equity and they had a way to get the equity now.
The Wells Fargo loan was made in 2006 – the cost of the new financing was $17,900 – almost as much as the balance (i.e. $23,649) then due on the original note with VW. Also, the term of the new loan with Wells Fargo – 72 months, on a 2005 VW Passat!
Just say “no” to that loan!
Why Is This Legal? [Credit Slips]
(Photo: spidra webster )
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She’s at fault in the same way that I’m at fault for leaving the keys in my ignition the day it was stolen (hypothetical only). That doesn’t mean the thiefs weren’t at fault.
In this instance, I think more blame goes to the bank, since they are the ones attempting to scam consumers into these kinds of loans.
@Farquar: Yes! Exactly. There are too many people who think a bank is looking out for their best interests! It happens at car dealerships, mortgage lending too.
I have seen it in action. You would be mortified to see some of the supposedly educated and intelligent people who seem to be incapable of looking out for themselves. Much of it comes from assuming other people are honest and a bit that they don’t get it that most business relationships are to some extent adversarial.
There is also a level of lack of understanding. People don’t understand the basic concepts in a loan or what all the terms mean. Instead of asking they blankly nod and sign, hoping the bank has their best interests in mind.
Consumer Math needs to be mandatory for HS graduation in all 50 states.
@bohemian: “Consumer Math needs to be mandatory for HS graduation in all 50 states.”
Many folks in consumer hell didn’t get that far in their education anyway.
@Tightlines: Precisely. There’s plenty of blame to go around here. The consumer was an idiot for agreeing, and the bank deserves to be left holding the bag for offering such a clearly bad product.
@Edge23: Yep. I agree. Plain and simple, reading that might have stopped this from happening.
@Edge23: I agree with this – if you can’t afford a 23k car… don’t buy a 23k car? I’m sorry, but it’s the same crap as all the subprime loans – if you can’t afford it DON’T FUCKING GET THE LOAN.
Oh, and read the fine print. Before you sign anything. I operate on the assumption that any financial institution is out to screw me, and read the contracts like that before I sign.
A fool and their money are soon parted. That doesn’t mean that it isn’t taken by crooks but seriously, who really thought this was a good idea?
I blame the education system.
@shockwaver: A good assumption to have.
@halftank: Hey thanks Casey!
Great quote, and my sentiments exactly.
Heh. My car has no equity (Okay, maybe I can get five C-notes for it). It’s a 1999 Geo Prizm.
Of course, it’s best feature is that it is paid off…. a feature I will not give up.
@Edge23: So true. People never want to give something up or lessen THEIR lifestyle to make things better.
I bought the new car last year and after having a year to think it over, next time I’m buying used in cash (well on my credit card to gain the rewards and then pay the bill immediately.)
I actually debated on selling the car as it’s an unnecessary expense since my old 98 Cavalier including maintenance never came close to what I’m paying in monthly bills for it now. Heck, the Blue Book value of my car is less than what I owe on it. Part of me would just like to sell it and eliminate the monthly payment and buy a car in cash using savings.
Jesus Christ.
Oops Sorry. But that was my first thought when I read about a loan on a depreciable asset.
My mind is boggled. Not just that she was stupid enough to take the load, but that they even OFFER loans like that – I mean, so they repo the car, which they have to sell and try to make some kind of profit on, and still waste resources trying to get her to pay…
I say she deserve to pay up for being stupid, and the bank deserves the hassle and cost for being stupid. It’s truly how stupidity should be rewarded.
er loan. take the loan. Sorry.
@Tightlines: I think a part of the problem is that our government regulators allow banks and their ilk to show the consumer 50 pages of crap that is purposely worded to confuse people. There needs to be a plain language rule where all the legalease is translated into English.
I have a credit card with Wells Fargo, and I have regretted opening it since day one. At least once a month they call me telling me how they’ve been “reviewing my credit and it seems I could use some help with debt management”. First, I never asked them to “review my credit” (they say it’s a “free service”). Secondly, after I (repeatedly) tell them I’m not interested, they start rattling off credit cards I have and loan balances, saying how I “really need to start paying some of them down”. The last guy actually asked me “so, what’s going on in your life? It seems like you have a lot of debt? You’re obviously bad at managing your credit, I think you need our help”. I have repeatedly told them to stop calling me, but they are relentless. (For the record, I have an excellent credit score, and am “managing” just fine…all their calls have been to offer me an equity loan on my car).
@GoPadge: There is a plain-language statement in every consumer loan, it’s the Truth In Lending Disclosure “box” that must be included by law in all consumer loans, and one of those boxes is the exact and total amount you will pay for this loan, including all fees and finance charges, if you service the loan for the full term. The trouble is, I’ve noticed that car financing scum seem to have a tendency to put that document toward the back of the pile of documents you have to sign. I once pissed off a finance manager because he handed me a neat pile of papers to sign, in order, and I rummaged through his nice neat pile and pulled out the disclosure page to read first.
what a clusterfuck. this is worse than a cash advance.
This is something pawn shops used to do in Florida. I think it was outlawed back in the 1990s.
@Edge23, dude, make up your mind. Are people idiots if they don’t hire a lawyer to review the paperwork when they get a loan, or aren’t they? Why does “get a lawyer” apply to everybody but you?
Amazing a concept as it may be, blame is not a zero-sum game. It is entirely possible for this consumer to have been stupid, AND for Wells Fargo to have intentionally engaged in predatory lending – surely I can’t be the only person wondering about that $1300 in fees.
PT Barnum was right….yet somehow it’s the banks fault that people are stupid?
Hell, if I was totally devoid of any sense of decency or ethics I’d have come up with something like this. I particularly like the whole loan origination fee of 3x the actual loan.
People never complain about casinos when they’re winning, only when the casino takes their whole stack of chips.
how many “blame the consumer” people are going to side with wells fargo when they try to get a fed bailout because of bad loans? Wells Fargo knew the terms too, they WROTE them, and yet they loaned out he money. When WF looks for a bailout, I expect each and every “blame the consumer” poster to write their congresscritter and tell them what a bad idea it is to spend taxpayer money on their bad decisions.
I don’t support a bailout for either the customers or the bank. They both knew what they were doing, or should have. Let the chips fall where they may.
Wells Fargo called me about my home loan (I looked into them while picking out a mortgage company).
They called me 6-8 times a day, about once every hour during the weekdays for about a month trying to hassle me into using them. I do not know if it was a specific agent’s policy or they farm the calls out to a call center or what, but I am not exaggerating at all about the frequency. I have never dealt with such a pushy bunch of people and would never use anything from them for the aggravation factor alone.
@ninjatoddler:
Well Fargo has good custmer service? They bought our my mortgage a few years ago and since then I have had nothing but problems. First it was the telemarketing calls which I always decline whatever they are selling and sometimes they sign me up for it anyway so I have to fight to get it removed and refunded. I ask to not be called and find out that I’m speaking to a sub contractor on behalf of wells so I only get put on the sub contractors do not call list so within a few months I get calls again until I finally wrote a letter to wells to aksing them to not solicit me. Then I get the scammy sales flyers in my bill so I signed up for paperless to get rid of those. Now they have decided to have their collections department call me because my payment is on time, yes the collections person is surprised their autodial system called me since they see my payment is there on time as always.
This is about as bad as cashing a Nigerian money order and “keep(ing) 10%”… sheesh
With all due respect, which in this particular case is none whatever, you have to be pretty damn stupid to think it makes sense to pay your grocery bill by taking out a loan at more than 16% interest. What should be illegal is this woman being allowed to vote.
I bought a used volvo. That thing hardly depreciated in five years. I took out loans against it three times at rates between 6-8%. I needed the cash for large unexpected issues. You needed a car that did not depreciate much, also I needed to get more expensive insurance to qualify.
@Edge23: See
[www.law.cornell.edu]
and
[www.law.cornell.edu]
and
[www.scribd.com]
@Tightlines: right, because anyone who isn’t american couldn’t possibly be scammed.
@backbroken: Oh please. No one is claiming the woman didn’t screw up. But that doesn’t make the bank innocent in this.
I guess you’ll want congress and the US taxpayer to bail you out because you’re a moron. It takes 2 to make a deal. You should have boinked them in the eye when they asked you to sign that deal. Bank’s are crooks. Those fancy bank buildings and executive salaries don’t come from their pro- bono work in the community. Where did you go to school? Obama’s Pollyannaville?