DALLAS — I have been getting more messages from Texans frustrated by the auto-buying process:
“He said they don't take outside financing.”
“My cash wasn’t good!”
“They will not take outside financing…we went elsewhere.”
These come from Texans shopping for vehicles and going through what I have termed ‘forced financing’ at the dealership. That’s a setup where they won’t sell you the vehicle if you have loan pre-approval from your bank or credit union. Some consumers say dealers have even refused to accept cash for a new car.
Instead, the dealer insists you finance with its preferred lenders. The catch is that when you do that, the dealer can add on to its lender’s interest rate. That increases what you have to pay in interest. It also increases the dealer’s profits because in that scenario they get a cut of the financing charge.
Why are so many consumers being affected by this?
More dealers may be inclined to do this because this is the perfect environment for them to take that extra cut. Pandemic vehicle inventory has been low, demand for the relatively few available autos has been high, and buyers have been desperate to get the new cars and trucks that are available.
That has put the dealer very much in the driver’s seat. But they should be cautioned now: There may be a sharp turn ahead.
Possible legislative action
State Senator Royce West of Dallas told me he found out about forced financing at the dealership, “On your show. First time I have ever heard of it.”
Right away, this powerful Right on the Money viewer thought the same thing many car buyers in Texas may have been thinking in recent months, “That can’t be legal.” But, he acknowledges, “After we did the research, there is no statute against it.”
In fact, the senator’s office checked with legislatures across the country and couldn’t find a law dealing with this kind of financing scenario in any state. Senator West says it’s time to change that…starting here in Texas, “I think we need to look at this and see what we can do down at the legislature to discourage this kind of behavior. That is anti-competitive. And Texas is not an anti-competitive state. We believe in competition.”
He is now planning to work on this issue in the upcoming legislative session. The senator says it’ll probably be an incremental process. Having been around the legislature for a very long time, he doesn’t expect to immediately score an outright ban on the practice of "forced financing."
But he suggests the state could take on the issue in steps, perhaps starting with requiring dealers to publicize it if they do business this way, “Should that be something that car dealers when they are advertising should be required to say? ‘You don’t have a choice with financing. You must finance with us.’”
Senator West is planning to begin crafting potential legislation for the upcoming legislative session that begins in January. He thinks a law making businesses more competitive and protecting and giving choices to consumers can garner broad support, “It should be able to get bipartisan support and that is how I am going to approach it.”
How to file a complaint about 'forced financing' at the auto dealership
While the practice is legal, when I first brought it to the attention of state regulators in 2021, they said they were “concerned” about the tactic. They asked that consumers who experience it file complaints with the Office of Consumer Credit Commissioner.
You can contact the OCCC's Consumer Assistance staff at (800) 538-1579 by sending an email to consumer.complaints@occc.texas.gov, or you can file a complaint through their website.
And this explains why it is important to get as much of the ‘forced financing’ conversation in writing as possible so that state regulators will have written evidence when they investigate your complaint.
Why senator says you should file a complaint
Senator West emphasizes that complaints filed by consumers are a crucial precursor to him filing a bill to target this dealership practice, “We will have information now that we can take to the legislative body and to the leadership. You have got to understand that I can get up there and get on the Senate floor and I can file a bill. But I have to make sure that the governor and the lieutenant governor and the speaker will make sure that the bill gets to see daylight.”
He says as more constituents speak up, it is more likely that legislative leadership will act, adding that it also helps to call and/or write your elected representatives in addition to filing a written complaint with the OCCC, “So that is kind of the secret sauce in terms of getting it done”.
Senator West says he will keep WFAA updated.