The CFPB has unveiled its latest “Know Before You Owe” initiative aimed at consumers shopping for an auto loan.  The new initiative was accompanied by the CFPB’s release of a report entitled “Consumer Voices on Automobile Financing” that is intended to share the CFPB’s research about how consumers approach decisions about auto financing.

The CFPB’s overall objective is to help consumers make informed choices about financing when buying a car by encouraging them to do the following:

• Shop for and compare financing options
• Look beyond the monthly payment and consider the total cost of financing
• Be aware of situations and financing features that could result in “costly surprises down the road”

Know Before You Owe.  The key component of the initiative is a shopping sheet that is intended to assist consumers by indicating which financing factors are negotiable (vehicle price, add-ons, fees, down payment, trade-in value, interest rate, loan term) and allowing them to compare the total cost of multiple loan offers.

The shopping sheet is also included in a guide entitled “Take control of your auto loan” that is intended to walk consumers through the auto financing process.  (The guide does not address leasing.)  The guide contains sections on (1) budgeting, (2) different types of auto financing (such as bank loans, dealer-arranged financing and “buy here pay here” dealer financing), (3) shopping for an auto loan (which includes advice encouraging consumers to checking current interest rates, consider the impact of an existing loan on a trade-in, and “think about optional add-ons ahead of time”), (4) negotiating an auto loan (which includes advice encouraging consumers to know what is negotiable and negotiate to lower the total cost and not just the monthly payment), and (5) closing the deal (which includes advice encouraging consumers to confirm that the documentation reflects what was negotiated).

Most of the information in the guide is also separately provided on the CFPB’s website.  Both the guide and the website information include highlighted tips, such as “If you finance add-ons as part of your loan, the amount you borrow and pay will increase,” “Be cautious of some biweekly payment plans,” and “In general, dealers and lenders are not required to offer the best rates available.  When negotiating, ask if you can get a better rate or more favorable terms.”

Report.  According to the CFPB’s press release, the auto loan initiative was informed by the research described in the report.  To research consumer experiences with auto financing, the CFPB conducted a series of focus groups with 308 consumers and examined narratives in consumer complaints submitted to the CFPB in the “vehicle loan or lease category.”

Themes that emerged from the focus groups included: (1) most consumers did advance research on the type and price of vehicles they wanted to buy but not on available financing options, (2) most consumers focused on the monthly payment and vehicle price, (3) many consumers did not consider or attempt to negotiate financing or interest rates, and (4) many consumers purchased add-on products despite having negative perceptions of the sales process for add-ons.

Themes that were identified in complaint narratives included a lack of understanding of financing options, difficulty understanding loan features during loan negotiations, and problems with add-ons such as paying for unwanted add-ons and reports of lenders insisting that the purchase of add-ons was necessary for loan approval.