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Auto Loan Defaults Newest Financial Meltdown

FREMONT (CBS 5) ― Auto payment defaults doubled last year and are expected to get worse -- a situation similar to the crisis in the home mortgage industry.  A CBS 5 ConsumerWatch investigation found actions made by consumers, dealerships, and lenders are contributing to the auto loan crisis.

According to Power Information Network, 1.85 of the 9.6 million customers in 2006 who leased or financed a new car were subprime borrowers or consumers with weak credit.

Vivian Snyder had strong credit and was not classified as subprime, but she is one of many consumers who can't afford the car she leased. Snyder drove a brand new convertible BMW with a MSRP listed at approximately $100,000.

Most consumers can't afford it, and neither could Snyder. That's because the monthly lease payment was $1,300. It ate up half her income which was a $2,500 disability check. "I made a mistake by driving off with the car. I thought my situation would change. I thought I'd be able to go back to work soon and make my usual salary. You always hope things will get better. I didn't realize I was getting such a bad deal. They added all these extras knowing it would be difficult for me to make the payments already. I'm greatly embarrassed, I should have looked over the lease better."

Snyder made three unsuccessful attempts to return the car, but the dealership told CBS5 it had no authority to take it back. The lease was already in the hands of the lender BMW Financial.

How did the deal even happen? Apparently, her income was inflated by nearly 150%.

According to consumer advocate Rosemary Shahan with Consumers for Auto Reliability and Safety the practice is common. "This is an epidemic of loan applications being falsified," said Shahan.  "In fact, the model for the meltdown we're seeing in real estate and home mortgage lending was auto lending."

Snyder's story started like so many others. She went to the dealership which is owned by Autonation, the largest automobile retailer in the country just to look.

She was caught up in the excitement and said she told the salesperson about her $2,500-a month income. But, what ended up on the credit application was the amount she could be making if she was not on disability.

"He (the salesperson) put what he thought I needed to get qualified for the car," according to Vivian.

She admitted she signed the lease with an inflated income at $6000 a month.

But CBS5 reviewed the lease application handed to Vivian as she left and compared it to a page from the same multi-layer document she retrieved days later.

Snyder's income had been changed once again - from $6,000 to $8,600, this time without her knowing. An "8" had been placed before the "6" and "0"s tacked at the end.

General Manager Larry Long said a salesperson insists he changed the figure while Vivian was present.

"I witnessed that sale. I saw her and congratulated her. She was so thankful. She was so passionate about wanting that car and would have done anything to get that car," Long said.

Long directed the blame on the finance company - BMW Financial Services.

"It's up to them to look at the credit application and they will see it at face value what the customer puts on paper as to be the truth," Long said.

CBS5 learned BMW Financial Services approved Snyder's lease based on her income stated as $8600. The approval occurred within a two-hour window and proof of income was not necessary.

Martha McKinley, a spokesperson with BMW Financial Services, said, "We have investigated this matter internally, and we are satisfied that BMW Financial Services acted appropriately at all times during the application and credit review process."

CBS5 aired Snyder's story and in the days following she returned the car to BMW of Fremont. She was unable to disclose terms of her agreement with the dealership, but said she learned her lesson. BMW of Fremont and BMW Financial Services had no further comments.

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