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Buy Here, Pay Here Dealers Slapped With New Rules Year After L.A. Times Investigation

Paresh Dave |
September 29, 2012 | 5:12 p.m. PDT

Executive Director

Bensinger's profile image on Twitter. Follow him @kenbensinger.
Bensinger's profile image on Twitter. Follow him @kenbensinger.
Auto dealers who sell used cars to people with low incomes and poor credit histories by issuing them loans with large down payments and enormous interest rates face new regulations in California after Gov. Jerry Brown signed a pair of bills Saturday.

The new laws trace their origins to Ken Bensinger, a business reporter for the Los Angeles Times. Bensinger published, Wheels of Fortune, an investigation about these Buy Here, Pay Here auto dealers last fall. The three-story series eventually earned Bensinger his second Gerald Loeb Award, one of business reporting’s top honors.

Bensinger's interest in Buy Here, Pay Here dealers began when he saw “strange little electronic devices” at an auto dealers industry conference in 2009. Bensinger eventually amassed an understanding of the nationwide growth of Buy Here, Pay Here dealers through court cases, bankruptcy proceeding and financial records and motor vehicle registration files.

The records showed these dealers have higher profit margins than regular used car dealers because they charge more and repossess cars when the low-income buyers can’t keep up with payments. The cars are re-sold several times in the same process. Wall Street firms bundle the loans from the dealers into securities, selling them for cash to grow the industry further. Bensinger’s final story explained these dealers filled a market gap by serving people who needed a car but could not get one any other way.

One new law requires dealers to disclose the fair market values of cars being sold. The other law requires dealers to provide a short-term warranty. Brown vetoed a third bill that would have added an interest rate cap to new loans and given buyers late on their payments a grace period. Brown said he was not convinced the evidence merited the oversight called for in the third bill.

"I signed two 'buy-here-pay-here’ consumer protection bills this session," he wrote in a veto message. "If consumers need added protection once those bills are implemented, my administration will work with the Legislature to find appropriate, measured solutions."

As the auto industry reporter for the Times, Bensinger regularly attended industry trade shows. As he wandered amid vendor booths at a convention in 2009, he saw a company selling a device he had never seen before: starter interrupters. Cars equipped with device can be remotely blocked from turning on.

“That’s for deadbeats who don’t pay for their cars,” Bensinger said the vendor told him. “Pretty, much all of our customers are buy here, pay here dealers.”

Unfamiliar with this type of dealer, Bensinger, a former Wall Street Journal and SmartMoney reporter, started digging. He would end up at a convention specifically for Buy Here, Pay Here dealers, filling two stenographer's pads with notes.

Bensinger started looking for Buy Here, Pay Here dealers in federal court cases and bankruptcy filings on the online PACER database. He searched L.A. County Superior Court and Small Claims Courts filings, too. He asked the auto dealer fraud and lemon law attorneys who had filed cases against these dealers for tips.

“There weren’t a lot of them because there wasn’t a lot of money involved,” Bensinger said. “The few that did take these cases on, I felt like I talked to them all.”

He also asked consumer attorneys, including those who offer free legal advice to people with low incomes, to refer him to people who might be having trouble with dealers.

What he needed where stories. The legal filings offered him names of victims. But chatting with them was a challenge.

“Just finding a good phone number for these people is really difficult because of the nature of this demographic,” he said, referring to general habits of people with low incomes. They change addresses often and many use pre-paid or disposable cell phones. In other cases, people he found were being hounded by debt collectors using unlisted numbers, so he chose to call them from his cell phone rather than his blocked L.A. Times number.

“Some were very eager to talk because they felt they had been given a bad deal, and they wanted others to avoid similar deals,” he said.

While he sorted through victims, Bensinger visited dealers throughout Los Angeles County and interviewed others in states such as Indiana and Florida over the phone. 

A prospectus filed for a possible stock offering by DriveTime, one of the largest chains, offered Bensinger more insights into the industry’s financial model. In a search for how these companies were expanding, he interviewed analysts from investment ratings agencies such as Moody’s and Standard & Poor's. His experience in covering the securities industry assisted him.

But, Bensinger said, “This was very virgin territory. It was very hard to track people down who knew about these (Buy Here, Pay Here securities) initially.”

He then wanted to know if there were alternatives to Buy Here, Pay Here dealers that could accommodate people's dire need for cars. He sought answers from several members of Congress, officials at state and local transportation agencies as well as academics at UCLA, UC Berkeley and Georgetown.

In spring 2011, he and editors decided to produce three stories rather than a single long story, packaging the series with charts, videos, documents and even an interactive comic. He spent May through October writing and re-writing, save for reporting on the debt ceiling debate in Congress and a few minor things during the summer.

When the first story was published in October 2011, Bensinger had filled more than two dozen six-by-nine-inch steno pads with notes. The pads along with “insane piles of lawsuits” finally could migrate from his desk to cabinets.

His note-taking and research was perfect though.

“I’m proud,” he said. “There’s no corrections to the story.”

To be sure, Bensinger said there were a few areas where he could have improved. He said he would would have like to use social media after the stories ran to elicit additional horror stories from readers. And he wishes he could have used data as a source of inspiration rather than a source for confirmation.

In one of the series’ side features, Bensinger traced the history of a car in Missouri sold eight times by one dealer. Attorneys in Missouri had pointed him to the company. But Bensinger said he would have rather used motor vehicle sales records to figure out which dealers to report on. Of course, it didn’t help that Missouri officials responded to his data request by mailing him print-outs of three years worth of monthly sales data. The files had to be scanned and made searchable using a computer program.

The impact of Bensinger's reporting has been clear.

Besides the laws, a nonprofit that helps low-income individuals get behind the wheel has opened in San Diego and is likely coming to L.A. because of the story, Bensinger said. Credit unions who repossess cars and usually auction them for a loss said they would offer the cars to low-income buyers through subsidized loans instead.

The Buy Here, Pay Here industry continues to grow, Bensinger said. At least lawmakers are paying attention now.

Gov. Brown signs two #BHPH bills, AB1534 and AB1447, implementing historic new Buy Here Pay Here regulations in California.

— Ken Bensinger (@kenbensinger) September 29, 2012

Like reporter Paresh Dave on Facebook, follow him on Twitter, circle him on Google+ or send him an e-mail.



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