A new investigation into California car dealerships using the Buy Here Pay Here method of financing is revealing some shocking statistics about car sales. Namely, the practice of “churning,” or selling the same car multiple times, is frequently being used to basically set customers up to fail so the dealership can score a bunch of cash down payments, repossess the vehicle when the buyer can’t pay on time and then sell that car again.

The Los Angeles Times researched the practice of churning, where a car dealership will offer its own in-house financing instead of using outside lenders to set up deals for customers. One dealership it investigated sold an 13-year-old Oldsmobile with 182,000 miles on it eight times in total, after repossessing it repeatedly.

These kinds of used cars can be snatched up quickly, often by low-income customers with bad credit who are eager to make a deal because they need the use of a car to get to work or transport family — or hey, they just need a car. Those same cars can be repossessed just as quickly as they’re sold, due to high interest rates and other factors written into the deals.

The LAT‘s research found that since mid-2008, 862 licensed used-car dealers in the state had sold one vehicle three or more times. One dealership even sold more than 750 cars at least two times in four years.

An industry expert quoted by the LAT who used to own a Buy Here Pay Here dealership near San Francisco says churning is just good business for dealers, and easier than going after customers for payments.

“A lot of these dealers set their customers up for failure,” he said. “They see your pay stub. They know how much you make, and they structure your payments so you can’t afford them.”

There is various legislation pending against the Buy Here Pay Here industry: Some of the bills waiting votes in the state’s legislature would cap interest rates dealers can charge, or force them to disclose the fair market values of every single car on their lots. They’d also have to register as lenders with the state. Other bills would require a 10-day grace period after payment is due so that dealerships couldn’t snatch up cars as little as a week after selling them and would also force dealerships to use third-party towing — upping the financial burden on the dealership when repossessing a car.

Assemblyman Mike Feuer wrote one of the bills and said its aim is to halt predatory practices like churning.

“The practice of turning over high-mileage vehicles multiple times underscores why we need to have this legislation,” Feuer said. “You want these transactions to succeed, and that doesn’t mean selling the same car many times over. It means the consumer keeps the car.”

Dealers’ repeat sales of same used car surprisingly common [Los Angeles Times]

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