Over the last decade, several different types of businesses have sprung up geared toward lending money to people with low income and poor or no credit.

One type that has grown quickly is a type of car dealership that finances loans in house and resells the repossessed vehicle after repossessing it when a borrower falls behind on payments. Consumer advocates charge that cycle of selling, repossessing and reselling, takes advantage of buyers who need cars but have few options.

Locally, at least two car dealerships sell vehicles with no credit checks by financing loans in house, rather than through an outside bank or financial company. Typically called "buy here pay here" dealerships, they sell vehicles with a down payment and a loan agreement no matter the customer's credit history.

Supporters of this type of lending contend that the businesses provide a service to a group of people who do not have many or any options to borrow money, that the lenders are clear about the costs and responsibilities of the loans and that the borrowers have the capability to make adult decisions about the agreements into which they enter.
However, critics contend that buy here pay here dealerships build their business models preying on people with no options by charging high prices and interest rates for the vehicles they sell and repossessing and reselling the same vehicles over and over again.

The principal difference between a buy here pay here car dealership and a traditional car dealership is that buy here pay here is mostly a financing business, according to advocates for the industry and for consumers. Loans are created and held in house, whereas traditional car dealerships will either have an outside institution handle the lending or will create a loan for a customer and then sell it to a bank or financial institution.

Family-owned C & B Auto Sales on U.S. Highway 278 east of Covington and U.S. Auto Sales, a chain based in Lawrenceville and located on Emory Street in Covington, are two local buy here pay here lots. Signs outside of both dealerships advertise that loans are made without a credit check.

Consumer advocates said that many of the dealerships will purchase cars as cheaply as possible, even as salvage vehicles, and sell them much higher than the market value.

"Generally the business model is they're buying cars really cheap and the rule is whatever the price of the car, make sure the down payment is that high," John Van Alst, an attorney with the National Consumer Law Center, said. "Everything after that is gravy. We see them selling for much more than they're worth. The ones we see that wind up with consumer attorneys, they are certainly paying a lot more than cars are worth."

Ed Mierzwinski, the consumer program director with the Federation of State Public Interest Research Groups, said the down payment and weekly or monthly payment schedule can be set based on a salesman's assessment of the customer, rather than the value of the vehicle or the ability to repay the loan.

"The basic business model is to sell you a car on a weekly payment and they figure out weekly payment on a particular car based on their assessment of you when you walk in," he said.

Questions emailed several times last week to buy here pay here advocates Ken Shilson, President of the National Alliance of Buy Here Pay Here Dealers, and Jack Tracey, executive director of the Community Auto Finance Association, were not answered.

When a borrower falls behind on the payments, a buy here pay here dealership will repossess a vehicle, just like a financial institution that owns a loan from a traditional car dealership. A key difference is that the buy here pay here dealership, because it owns the loan, keeps the vehicle and can resell it.

Because there is no credit check to determine how likely an individual is to repay a loan, the interest rates tend to be much higher to compensate for the additional risk. Georgia law caps interest on loans at 5 percent per month, which compounded monthly and calculated over the course of a year equals an annual rate of nearly 80 percent.

Some buy here pay here dealerships build their business on repossessing and reselling a vehicle multiple times. "We see repossession mills are very common," Van Alst said. "I can't give you numbers because there's not anyone tracking this on the state or federal level. But in a lot of cases we see, you'll find the car has numerous previous titles from the same dealer."

A review of five vehicles each from C & B Auto Sales and from U.S. Auto Sales found that almost all were high mileage - over 100,000 miles - and several have had multiple owners over the last two to three years, according to CarFax reports run on the vehicles. Several were owned for a few months, according to the reports, and one vehicle had two owners who had the car for days.
None of the vehicles were listed as salvage titles, where a vehicle is considered a total loss by an insurance company or is sold for scrap by an owner but is repaired and resold with a new title.

One vehicle, a black 2000 Pontiac Grand Prix on the lot at C & B, has had four registered owners since March 2010. One owner had the car for 19 days, and another for 30 days. The other two had the vehicle for eight months and for nine months. The registrations were at multiple cities around Georgia, and the CarFax report did not list which dealership sold the car.

Another vehicle, a silver 2001 Mitsubishi Eclipse Spyder, has had three owners since 2008, none of which owned the car for longer than nine months. Two owners registered the vehicle in Florida, with ownership lengths of nine months and seven months, according to the vehicle's CarFax report. The most recent owner registered the vehicle with a lien in Monroe on July 15, 2011. It was on the C & B lot for sale last week.

Several attempts to interview Charles Buice, the owner of C & B Auto Sales, this month were unsuccessful. Two calls made last week to a spokesman for U.S. Auto Sales were not returned.

Buy here pay here dealerships are not regulated differently than traditional dealerships under Georgia law; however, they must comply with all state and federal lending and collection laws along with vehicle sales laws.