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FTC Investigates Biweekly Payments

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On: Fri, May 16, 2014 at 4:52PM | By: Karen Cook

FTC Investigates Biweekly Payments

I worked for several years as the office manager for Ugly Duckling Car Sales. It was a dealership of last resort and catered to people who found it impossible to purchase a vehicle at more reputable dealerships. It was policy to sell cars that were less than dependable, but if it rolled off the property any problems fell on the new owner. Or the dealership would give a “great deal” on another vehicle.

Ugly Duckling went out of business, but another of its common practices is still around and is under federal investigation. I didn't think much about this when I worked there, since finance wasn't part of my job, but apparently the National Automobile Dealers Association (NADA) has gotten several complaints about biweekly payments and the Federal Trade Commission has launched an investigation into this practice.

The theory is that biweekly payments are beneficial to buyers because it saves on interest charges and puts the vehicle in a positive equity position more quickly. This is because the loan requires 13 monthly payments instead of 12 with the extra payment applied directly to the principal. With the extra fees associated with the arrangement, however, the numbers don't support that. On a loan of $27,342, for example, the buyer should expect to save $656 in interest charges. But with an initial fee of $399 and almost $2 added to every biweekly payment, the fees add up to $613 leaving the buyer with a saving of only $43. The NADA believes that dealerships may be presenting this option as having “substantial savings” which is simply not true.

In a memo sent to dealerships on May 8th, the NADA asserts that F&I (finance & insurance) staff must be “properly trained to accurately and adequately disclose all fees and costs” without misleading their customers.

Robert Steenburgh, CEO of US Equity Advantage in Orlando, FL, takes issue with having this single practice investigated, saying in a reply memo that “any product or service in a dealership can be sold in a false and deceptive manner.”

No one fully trusts everything they are told at a dealership and it should be noted that Ugly Duckling went out of business as it lost more and more trust from consumers. I don't think all dealerships can be put in the same basket, but it does seem to me that a little more honesty would go a long way.


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