“That hasn't been our focus, because it has been more of a problem for the states,” Dolan said.
Although Congress last year granted the new Consumer Financial Protection Bureau authority over consumer lenders and specifically included Buy Here Pay Here dealers, the agency has given no indication it will focus on auto loans.
“Nobody ever goes after these dealers,” said Rosemary Shahan, president of the advocacy group Consumers for Auto Reliability and Safety, which helped draft California's Car Buyers Bill of Rights. “They do whatever they want without fear of rebuke.”
Some dealers purposely structure deals with a high likelihood of default, assigning payments that exceed what the borrower can pay, consumer attorneys say.
When the customer defaults, it's common for the dealer to repossess the car, declare a loss for tax purposes, and put the vehicle up for sale again.
“Once they get payment from the first buyer, everything else is gravy,” said Dale Irwin, a Kansas City, Mo., attorney who concentrates on auto fraud cases. “They can collect $25,000 on a $2,500 car.”
A Times review of motor vehicle records in three states where the Buy Here Pay Here business is thriving found that repeat sales of the same car, a practice called “churning,” is common.
In California, Repossess Auto in Hawthorne and a sister lot have sold more than 130 vehicles at least three times each since July 2008, according to state Department of Motor Vehicles records.
Midwestern Auto Sales Inc. of Middletown, Ohio, has sold at least 250 cars twice or more each since January 2008, state records show.
Neil's Finance Plaza in Kansas City has sold nearly 900 cars at least three times each since 2006. Four of them have been sold eight times apiece.
‘King of Credit’
Gustavo “Gus” Camacho, who runs four Buy Here Pay Here lots in the Antelope Valley, says most dealers try to do right by their customers.
Camacho's customers are drawn from the dusty streets of Palmdale and Lancaster, where the median household income is nearly $9,000 below the statewide median of $60,392. Many of his customers have checkered financial histories: repossessions, foreclosures, missed child support payments, unpaid medical bills.
The 24% interest he charges is triple the going rate for conventional used-car loans, but Camacho said it's necessary to compensate for the high risk of default. He prides himself on fully disclosing the terms.
After a deal is signed, the salesman takes the buyer on a tour of the collections department, “so we're all on the same page,” Camacho said. Account managers get off the phone long enough to explain that payments are due every two weeks.
A running tally on the wall shows that delinquency rates on the 100 or so new loans issued by Camacho Auto every month are just below 20%, better than the industry average of nearly 25% reported by the National Alliance of Buy Here Pay Here Dealers.
Camacho, who took over the business from his father, calls himself the “King of Credit” in high-energy TV commercials. “My goal is to be fair and give people a second chance,” he said.
Tiffany Lee, the single mother who works for the UCLA Health System, went to Repossess Auto in 2009 seeking a second chance of her own.
She said she was thrilled to have a car and kept up on her payments for 17 months. Then she ran into trouble. After missing a third payment on her 2007 Ford Fusion, she filed for personal bankruptcy, which barred the dealer from repossessing the car. The $17,000 loan balance was her largest debt, according to her court filing.