Bark's Bites: Subprime Lending Is Even More Bizarre Than You Imagined

“We’re dirty, yeah, but so are the dealers. We’re all dirty in this business.”

The petite, honest-faced young lady sitting across from me at my lunch table doesn’t look like a predator. To be fair, she isn’t. She just works for a company that’s one of the biggest subprime lenders in the country, with offices in several states. By the time a dealer calls them for a loan, they’ve already tried every traditional bank and credit union in their Rolodex.

And in exchange for a delicious burrito, she agreed to meet with me and pull back the kimono on the subprime auto lending business in the United States, a business which many in the financial sector believe to be the next big bubble.

I have a lot of questions, and she’s more than willing to answer them. I ask what sorts of credit scores they’ll approve.

“We can pretty much approve any credit score. I just approved a 413 beacon score the other day. Of course, it was a 25 percent loan. Credit is really just one piece of the puzzle,” Elizabeth* (not her real name) explains to me. “Sure, we pull TransUnion and Equifax, but we’re also looking at their obligations versus their verifiable income. Medical bills don’t count. It’s just rent plus whatever else is on their credit report.”

“Sure,” I say. “That makes sense.”

“Of course,” she continues between small bites of burrito, “if they’ve just stopped paying a bill, something other than another car loan, we don’t count that bill as part of their monthly obligations. Nobody pays student loans. They’ll have like five or six loans and won’t have paid a damn dime in months. So we don’t worry about those.”

Hang on. It gets weirder. And better.

“We consider how long they’ve been at their job, how long they’ve lived at their current address, things like that. That’s more important than credit score. Of course, if they already have two cars they aren’t paying, we aren’t going to approve them for a third one. That happens a lot. If they have prior repossessions, we won’t touch it.”

“So how much are these loans normally for? What sorts of rates are you offering?” I ask.

“Most of them are between $10-12k. We don’t do older, high-mileage junk. We need to be able to sell the cars at auction if we have to repo them. Rates are between 15-25 percent. Average loan length is about 40 months.”

My jaw hits the table. “What percentage of cars are repossessed?”

“We aim for less than 2 percent of our total book of loans. Normally, we’re between 2-3 percent.”

“So this is a little different than the garden variety, suburban Atlanta-style Buy Here Pay Here lots, where the slimeball owners actually want to repo the car?” You all know what I’m talking about.

“Absolutely. We want our money. We don’t want to repo the car at all. But, of course, we have to sometimes.” Elizabeth laughs. “I once went repo hunting on Christmas Day.”

“What do you mean, repo hunting?”

“Well, we know where our customers live, where they work, where their closest relatives work. Sometimes my manager asks me to go see if I can find a car if it’s near my house. I had a customer whose family was right around the corner from my place, and I thought he might be there for Christmas dinner or something. Fortunately, he wasn’t, so I didn’t have to make that call.”

She thinks for a minute. “But yeah, I totally would have. It sucks that we have to do it, but I actually really love that part of the job. I called in a lady once because I saw her car at the fast-food place where she worked. We picked it up, and of course she called us wanting to know where her car was. Couldn’t be bothered to answer the phone for the 60 previous days when we were calling her twice a day, of course. But the minute her car was gone, she called us that second.”

“I’m guessing that you’ll work with people, then, if you don’t actually want to pick up the cars?”

“Absolutely. If they call us and tell us that they’re having problems, there’s a lot that we can do. We can take payments and put them at the end of the loan. We can move the payment date. If they’ve paid more than half of the loan, we can restructure the loan and stretch it out a bit to lower the payment.”

“So what triggers a repo?”

“Once they go 60 days, they’re on the list. After that, it just really comes down to how quickly we can find the car. We can’t open garage doors, we can’t go behind gates. If they’re hiding the cars, we have to get the Sheriff’s office involved. But we’ve pulled cars out of driveways several times before.”

“Do you ever have people that you feel bad for? Customers that you know have been screwed over?”

“Oh, yeah. There’s one little old lady who has a brain tumor. She comes in every single week to make partial payments. I know she doesn’t really know what she signed up for. There’s another guy who has a genuine learning disability, and I have to explain his loan to him every month. I feel terrible every time he calls. Lots of people have crises that they can’t predict, and these days, who can afford to be out of work or have an emergency?

But, to be honest, most people who don’t pay are just pieces of shit who don’t wanna work. I’ve had the repo guy pick up cars from the nail salon before — they won’t pay the car note, but you can always catch them at the nail salon. We don’t use Lojack, unfortunately, because it’s so expensive, but I wish we would.”

Elizabeth continues. “There’s straw loans that happen — we try to avoid that, but we can’t catch them all.”

“Hold up,” I say. “What’s a straw loan?”

“That’s where somebody else — a friend, a family member, etc., — signs the loan for a car that somebody else is driving. That’s actually illegal in most states, including this one. The primary driver has to be on the loan. Then you have situations where the dealer will powerbook the car — ”

“Hold up again. What’s ‘powerbooking?'”

“We won’t approve a loan for more than $1k above book for a first-time buyer, and we won’t go above $2k, period. So the dealer will inflate the value of the vehicle by adding all sorts of options to the description that it doesn’t actually have. We can plug the VIN into NADA or Black Book and get a value, but that doesn’t decode all of the options. The dealers know this, and they’ll try to say it has a sunroof, leather seats, etc. We go to the dealer website and look at the pictures of the car if it seems fishy.”

“Hayzoos. What shady people.”

“It gets worse. We have a lot of dealers — dealers you’ve heard of, franchise dealers — that we don’t allow to send us loans anymore because they’ve created fake pay stubs for customers.”

“What??”

“Oh, yeah. Dealers send over the most hilarious stuff. They spell the counties wrong on the tax withholding section, they make up fake companies. We research all of that. We can go to the Secretary of State website and see if there’s a business registered under that name, or we’ll search Facebook for a business page, or just a simple Google search. It’s amazing how many fake roofing companies these guys have made up.”

“So who are your very best customers, then?”

“Drug dealers. No question.” She’s very definitive on this point. “They pay on time, every month, in cash at the office. They’ll even pay extra money toward the principal — I’ve explained how that works to a few of them, and they really love the idea. Of course, the money smells like weed and makes the office reek for the whole day. Great customers. Horrible people, yes, but great customers.”

“What are your best stories from your time in this business? You have to have some good ones.”

Elizabeth pauses for a moment. “Probably the lady who claimed we killed her husband. We call twice a day once somebody goes 30, without exception. Most people nowadays know how to block a phone number, but not these people. Well, she told us one day when we called that we had stressed him out so much that he had a heart attack and he died.”

“Get out of here.”

“For real, he died. We expressed our condolences, but then we had to ask when she’d be able to catch up the payments. Talk about awkward. Then there are the office bets.”

“What are those?”

Elizabeth pulls her phone out to show me her notes app. “I’ve got all my bets here. We bet each other about who will pay and who won’t. I don’t have a very good nose for it. There’s one woman in the office who’s really good at picking winners.”

I suppose you have to have a good sense of humor to work in that business for any length of time. Elizabeth confirms this.

“There’s one lady who’s been doing collections for us for five years. I just had my first anniversary. I don’t want to be doing this for four more years, I can tell you that. She’s miserable, and I would be, too.”

There’s so much more that I want to ask, but, unfortunately, Elizabeth’s lunch hour is over and she has to head back to the office.

I thank her for her time, and pray silently to myself that I’ll never find myself in a situation where I’ll need her company’s services. As the fictional character Mark Baum says in the movie, The Big Short, “Their entire business is based on screwing people over. How long can that last?”

[Image: EveryCarListed P/ Flickr ( CC BY-SA 2.0)