Just as “Buy Here, Pay Here” (BHPH) dealerships seemed to reached the peak of their battles with the Consumer Financial Protection Bureau and various states’ Attorneys General, a new threat has emerged: The “Buy Here, Pay Elsewhere” (BHPE) car lot.
Often preying on middle-class neighborhoods, the BHPE car dealership promises potential buyers a way to purchase a used vehicle and spread the financing over five, six, or even seven years. While critics of the BHPH business model focused on exorbitant interest rates and fees, personal finance experts applaud the fact that they forced buyers to pay the vehicles off within one to two years — at most.
“Buy Here, Pay Here lots perform an important service to credit-challenged communities,” notes Southern Poverty Law Center fellow Dr. Tim Fellows. “They push financial discipline into inner cities and underserved rural areas, emphasizing a responsibly large down payment and a quick loan payoff. This basically assures the buyer is never upside-down on the car. That’s a lot more than I can say for the BHPE model, which is often bankrolled by Wall Street organizations with little interest in serving our communities.”
Dr. Fellows’ criticism is not unique. A growing number of “New Suburbanism” studies indicate these BHPE dealers tend to locate in areas that prey on the middle class, such as near shopping malls, vapor (“vape”) shops, and sporting goods stores. “I believe people can make good choices,” says one BHPE Finance Manager on the condition of anonymity, “But when we’re dangling 0.9% financing in front of them for 72 months, it’s very tempting to get into a new car that’s far more than they can afford.” He continued by noting that these rates are only possible due to the collusion of the vehicle manufacturers and independent outside financial units — many of which are tied to well-known megabanks.
In a recent survey by the non-partisan Gallop Institute, over 67% of the American middle class in in a BHPE contract of some kind, while only 2% are in a BHPH arrangement. Further, BHPE contracts have an average term of 66 months compared to just 11 months for BHPH. Vehicle transaction prices are also wildly different: BHPE is approaching $30,000, while BHPH is just $4,500.
Miguel Saldana, president of the Texas Buy Here Pay Here Dealers’ Association, is an outspoken proponent of BHPH and a harsh critic of outside financing. “While I’ll admit many of our dealers charge high APRs, the fact is that short duration loans are far more responsible for both parties involved.” As he hastily shredded papers during our meeting, Mr. Saldana responded to criticisms that BHPH dealers were fly-by-night operations, defending “I take about 80% of my flights during the day.”
Acting Director of the Consumer Financial Protection Bureau, Melinda Brown, says the agency is “looking into” reports that Wall Street banks and major manufacturers are working together to push these loan terms. She also notes that many of the same lenders have allegedly also pushed consumers out of simple, month-to-month apartment leases and into 30-year homeownership commitments with the nebulous promise of future equity.
“So far,” Ms. Brown states, “These claims are just hearsay, but the Trump Administration and I are working closely with Wall Street to uncover any misdeeds at the highest levels.”
When pressed for comment, President Trump’s office did not respond directly, tweeting only “Kudos to @MelissaCFPB for defending America’s middle class, heckuva job, Brownie!”
Ash78 is currently Buying There and Paying Elsewhere but refuses to play the victim card.