Dealers who can offload loans to banks before the loans fail take the same rapacious approach that mortgage lenders took in the run-up to the recession. They prey on less sophisticated borrowers, falsifying the borrower’s income information and writing loans with astronomical interest rates and hidden fees that deliver a quick profit to the dealers.
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The government also must require that auto dealers, like mortgage lenders, verify that borrowers have the ability to repay their loans and meet their other expenses. In addition, regulators should bar the dealers from gaining additional profit by manipulating interest rates. Beyond this, banks that buy auto loans should be held strictly accountable for any irregularities.