"She saved up her hourly pay and eventually went to a Kia dealership, where she picked out a black 2013 Optima. The cash price was about eleven thousand dollars; the price Traylor was quoted, after factoring in a loan and finance charges-at an annual percentage rate, or A.P.R., of 22.99 per cent-was twenty-four thousand. "I didn't even know what an A.P.R. was," she told me."
"Traylor signed a five-page contract created not by the dealership but by Credit Acceptance Corporation, a subprime auto lender, based in Southfield, Michigan, that partners with thousands of car lots across the country. The algorithm didn't assess her particular financial situation; rather, it calculated how much the company would be able to recover if she didn't follow through with her payments. The lower the predicted recovery amount, the higher the price."
Kashaye Traylor, a single mother working full-time while pursuing nursing education, purchased a used car through a dealership that sold her contract to Credit Acceptance Corporation, a subprime auto lender. The lender's proprietary algorithm determined her loan terms not based on her financial situation, but on how much the company could recover if she defaulted. Traylor's $11,000 car ultimately cost $24,000 with a 22.99% APR, requiring $343 monthly payments over five and a half years. She was unaware of the algorithm's role or what an APR meant. This case exemplifies how vulnerable consumers face predatory lending practices while government agencies designed to protect them face budget cuts and reduced oversight.
#subprime-auto-lending #predatory-lending-practices #consumer-financial-protection #government-regulation #algorithmic-pricing
Read at The New Yorker
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