- 2 days ago
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Short filmTranscript
00:00Take a ride undercover.
00:05Just looking for a little commuter car.
00:07Inside car dealerships.
00:09112 biweekly at zero percent.
00:11This is the trick.
00:12The average consumer sees that, they think, oh, I can afford that car.
00:16It is an open one, you can pay it every time you want.
00:18I can't get out of it, so I have to pay it.
00:21It's troubling.
00:22I want to go in there and find out what's going on.
00:24How not to buy a car.
00:26This is your Marketplace.
00:30Jenny's shopping for her first vehicle.
00:34The biggest purchase of her life.
00:36And cost is her main concern.
00:39Yeah, I'm just looking for cars.
00:42Oh, okay, sure.
00:43I'm looking for a smaller car.
00:45Just looking for a little commuter car.
00:47She doesn't want to pay a lot and really doesn't want a big debt.
00:51And how much was this one?
00:53Jenny is genuinely looking to buy a car.
00:56You're on?
00:57Yep.
00:58And recording it all with hidden cameras.
00:59And this will just hide everything.
01:01Because she works for us.
01:04Alright, let's see you later.
01:10About 2 million new cars will be sold by the end of 2017.
01:14Many of them with the lure of low payment loans that seem so affordable.
01:19But are the dealerships revealing everything you need to know?
01:22To find out, we're calling in the pros.
01:27This car just turns heads everywhere it goes.
01:29That's Sherry Primack.
01:31Mild-mannered school teacher by day.
01:33Car buying expert in his free time.
01:36And that $100,000 Lexus?
01:39It's borrowed.
01:40I get to test drive new cars every single week.
01:43Don't actually even own a car.
01:45Sherry works with Mohamed Bouchama.
01:4884 months.
01:49He heads Car Help Canada.
01:51A popular car buying service for consumers.
01:54Oh yeah.
01:55They trust what I tell them.
02:02They're dropping by to analyze the financing advice Jenny's hearing at dealerships.
02:08Hi David, how are you?
02:09Good to meet you.
02:10Good to meet you.
02:11Sherry?
02:12Good to meet you David.
02:13Really good to meet you.
02:14Alright, we're going to look at some clips.
02:18Looking for a smaller car.
02:20Jenny's visiting 10 dealerships in the Toronto area that sell popular small cars in Canada.
02:28She's barely in the door when she hears about low payments spread over a very long time.
02:34Okay.
02:35Oh, that one?
02:36I think so.
02:37100% financing.
02:38Yeah.
02:3984 bucks.
02:40112 bi-weekly at 0%.
02:42If you do it for a month for a cough, you're looking at a payment of 168, 63 every two weeks.
02:55Every two weeks.
02:56Yeah.
02:57That focus on payments is a red flag for our experts.
03:01We don't even hear at all the price of the vehicle at all.
03:04All we hear is the monthly payment, or the weekly payment, or the bi-weekly payment.
03:08I mean, that's not right.
03:10It really is not at all.
03:11927 bi-weekly at 84 months.
03:19Over and over, it's low payment.
03:21125.
03:22273.
03:24Bi-weekly, 149.
03:27111 dollar.
03:28111 dollar.
03:30Bi-weekly.
03:31Spread over a long time.
03:33Seven years.
03:34And most of the dealerships, they instantly offer up loans of seven years.
03:39For seven years.
03:4084 months.
03:41Seven years.
03:42And that's for seven years?
03:43Seven years.
03:44The average consumer sees that.
03:46They think, oh, I can afford that car.
03:48I can manage that.
03:49No problem.
03:50But it's just another way of bringing consumers into the dealership and selling them something that they really can't afford.
03:59Car loans used to be shorter, like 48 months.
04:02Get an incredibly low 2.9% financing.
04:05Then came the Great Recession.
04:07Money was tight.
04:08So automakers teamed up with banks and other lenders to get you buying again by stretching out payments.
04:15Plus get 0% financing for 96 months.
04:18And it's working.
04:20More than half of new car loans are seven years or longer.
04:24It's like seven years is a pretty long time.
04:26So I'm thinking in seven years, like, I don't know, I might have kids or something.
04:29Well, you can always pay faster to open loans.
04:32We're waiting for a month.
04:33It's open loan.
04:34You need to pay it off any time you want.
04:36On nearly every visit, Jenny is told paying off years early is no problem.
04:41It's an open loan.
04:42Oh.
04:43It's an open loan.
04:44You can finish anything you want.
04:45Nobody's not paying for seven years.
04:47Yeah.
04:48They pay it off quickly.
04:49Not true, according to our experts.
04:51I mean, yes, you have the right to pay it off.
04:54But majority of people cannot afford to pay it off.
04:56And why is that?
04:57The majority of people can use an overload with debts.
05:00So really, they can't afford just to get, suddenly, you know,
05:03they get another $20,000 in one or two years and pay off a car.
05:06It's impossible.
05:07Dealerships, though, still suggest it.
05:10And seven out of the ten Jenny visits start by pushing long loans.
05:14They really should be telling the shopper, you know,
05:17this is the price of the vehicle.
05:19These are your different options.
05:21You can finance for this much over four years, this much over five years,
05:25and so on.
05:26So why isn't that happening?
05:28Dealers and salespeople in Ontario must follow a code of ethics and the law.
05:32They must be clear, act with honesty, integrity.
05:35And the man who enforces it all is John Carmichael.
05:39We show him the offers.
05:41Low payments, long time.
05:43That one?
05:44I think so.
05:450% financing.
05:46Yeah.
05:47That, to me, is short-sighted, just a recipe for problems.
05:58For a consumer to make a fully informed decision,
06:00they need a lot more information than that.
06:02Should a potential buyer be shown just the long-term options,
06:06or should they be told about other options in front of them?
06:09Well, my preference would be they should be shown all options.
06:12The more choices, the better able you are to make the best decision for you and your family.
06:17Jenny ended up pushing back a bit against this idea of just the seven-year loan.
06:23Right.
06:24And I'd like to show you a little bit of that discussion.
06:26Okay.
06:27Well, you can always pay faster.
06:29It's an open loan.
06:30It's an open loan.
06:31Oh.
06:32It's an open loan.
06:33Do you think that advice is fair?
06:34Is it honest?
06:35It's troubling.
06:36When I have a young person who's standing in front of a situation like that,
06:41looking for their first car,
06:43I would want to know that they're going to get a lot better sales experience.
06:48I want to go in there and find out what's going on.
06:51Sherry has his own theory.
06:53Long-term loans with the low monthly payment often encourage consumers to buy a more expensive car.
06:59Because why buy the affordable car for $20,000,
07:02when for a longer loan I can buy the fancier car for $30,000 at the same monthly payment?
07:09That is the key to bigger revenue for automakers and dealers.
07:14While a $20,000 car costs $154 every two weeks on a five-year loan,
07:19a $30,000 car is just $11 more of payment.
07:23But you're paying for two more years.
07:25Well, I'm going to have to think about this.
07:27But thank you.
07:28Think about this.
07:30Yeah.
07:31$10,000.
07:32That upsell is happening to Jenny right now.
07:36How much is this one outright?
07:38$33,000.
07:39$33,000.
07:40That's way higher than I was looking at.
07:43You're going to be falling in love with an expensive car.
07:46If you want to keep it for longer term, you're not going to change it.
07:49You know what I mean?
07:50This is the trick.
07:51And suddenly you stop thinking about your budget.
07:53You stop thinking about how much you can afford.
07:55And the way they do it, well, don't worry.
07:58You can do it for seven years.
08:00Yeah.
08:01And your monthly payment is going to be only this much.
08:03And then 84 months, like the car will last that long, right?
08:07Oh, yeah.
08:08Yeah.
08:09Was that a silly question?
08:11Oops.
08:12Maybe they're not built to break.
08:14Yeah.
08:15Right?
08:16They're built a lot.
08:17And will the car last five years?
08:18Yeah.
08:19Yeah.
08:20Yeah.
08:21Most five years.
08:22Mine's going to last me 10 years.
08:23Are you kidding me?
08:24Cars are more complicated now than they ever have been.
08:28There are a lot more electronics.
08:30There are a lot more sensors.
08:31There are a lot more sensitive parts that can be very, very costly to replace.
08:35The last thing you want to do is be in a situation where you're making payments on your vehicle
08:40at the sixth year or seventh year, and it starts to require costly repairs.
08:46And at the same time, it's worth very little if you want to sell the vehicle.
08:51In your opinion, for the average person, what is the best length of time for a car loan?
08:56No more than five years.
08:58I would say ideally four years, but you could stretch it to five years.
09:01Five years.
09:02Okay.
09:03Seven and eight?
09:04No.
09:05No, no, no.
09:06If you're stretching a loan to seven, eight years, you can't afford that car.
09:08Right.
09:09Forget it.
09:11Good advice.
09:12And she does hear it, but only a couple of times.
09:15That's your payment for five years.
09:17That's the payment for four years.
09:19Even more rare?
09:21Salespeople who warn about longer loans.
09:23Some people bought a $96 one.
09:25$96 one is like over eight years financing.
09:27Eight years financing, it's like a mortgage you don't want to finance a loan.
09:30A buying house, right?
09:32If you don't look at the repayment, look at the overall price.
09:35Okay.
09:36I would like to go in five years.
09:38That's great advice.
09:40It really is.
09:41I'm surprised actually.
09:42There is no question.
09:43He is telling her the truth.
09:45You know?
09:46This is what you think people should be seeing.
09:48Absolutely.
09:49Insider secrets.
09:51We'll give them enough information to make a decision, but we're not going to point
09:55out all the negatives.
09:56You're not losing in any way.
09:58You're going to lose your shirt.
09:59The ride continues on your Marketplace.
10:06How not to buy a car.
10:09We're testing the advice you get at dealerships about car loans.
10:14That's for seven years.
10:17You can always pay faster, it's open loan.
10:22That to me is short-sighted, just a recipe for problems.
10:29Problems leading many Canadians into a spiral of debt they can't escape.
10:3524-year-old Chantelle Matthews knows all about it.
10:42She's working two jobs to pay off one massive car loan.
10:47Basically, wake up, go to work, and then go to the other job.
10:56Job number one at a building supply centre in Bracebridge, Ontario.
11:01Yeah, give me one second.
11:04She's here from seven to five.
11:06End of this shift is the beginning of the next.
11:11Let's give it a ride.
11:15How much sleep do you usually get when you're working two jobs like this?
11:18Between three to four hours.
11:20You must be exhausted a lot of the time.
11:22Yes.
11:23It does take a toll on you.
11:26Job number two goes late at the local pub.
11:30By the time she closes, it's almost 3am.
11:41Chantelle's troubles began when she bought a new Hyundai on an eight-year loan.
11:46I wanted a vehicle that was cheap, reliable, you know, half decent, will last you a while.
11:55158, I believe, every two weeks.
11:59Seemed affordable, but the car kept breaking down.
12:03The fan and the fan motor went, the alternator went, and then wheel bearings started going.
12:09And this is all within three months of owning a brand new car.
12:14She says the dealership wouldn't take it back, told her to trade it in for a new one.
12:19But the car was now worth much less than she paid for it.
12:24They said you have to carry some of it over because you signed for the car, the car's been used.
12:30That difference between what she owed and what the car was worth is called negative equity.
12:36It's not good.
12:37Not good. And it costs you. And it costs you big time.
12:41Sure does.
12:42It means $17,000 in old debt was added to the loan for this new car.
12:49With the two cars, it was about 50 grand.
12:52About $50,000.
12:53Yep.
12:55You seem very calm about that.
12:57I've accepted the fact because I still have to pay it.
13:01I can't get out of it, so I have to pay it.
13:03There are thousands of Chantels out there.
13:06A quarter of all cars being traded in for new ones still have money owing on them.
13:12Did anybody ever explain what negative equity was?
13:16No.
13:17They did not explain the negative equity to a detail.
13:22Back on Hidden Camera, that's what we're testing next.
13:25How will salespeople explain negative equity and trade-ins?
13:30Hi, how's it going?
13:31Okay.
13:32Good.
13:33Let's say you do have six kids in the next three years.
13:35I hope not, but okay.
13:37We can work on that.
13:38Yikes.
13:39He finally gets to his point.
13:41Early trade-ins are a cinch.
13:43We can trade in your vehicle at any time and upgrade you to any other car.
13:47Really?
13:49Okay.
13:50You're not losing in any way.
13:52Not how our experts see it.
13:54You're going to lose your shirt.
13:57Absolutely.
13:58I mean, it's crazy.
13:59This is all about negative equity.
14:00Absolutely.
14:01That at three or four years, you owe more than the car's worth.
14:05A lot more.
14:06In fact, you owe more on your car than it's worth until five and a half years into a seven-year loan.
14:13Any time you want to trade it in, you can trade it in.
14:17We pay off the loan when you get into your new car.
14:20You pay off the loan?
14:21We do, yes.
14:22No, you're paying the bank the money that you owe, but they are charging you.
14:26Yeah.
14:27They are adding that to the price of the new vehicle.
14:30The debt just keeps on piling on, and it's very dangerous.
14:33I'm just wondering, though, that 84 months, and then, because if I bring it in three to four years,
14:38that's still like half the car that's not paid off yet, and you just get rid of that money.
14:42But where does it go?
14:44Because we then, we pay off and we sell a car for that.
14:47Oh, okay.
14:48We're showing that explanation to Ontario's auto regulator.
14:52It's like half the car that's not paid off yet.
14:54Yeah, it's very troubling to just say we pay off the loan.
14:57Well, how do you pay it off?
14:59You don't just pay off the loan.
15:01John Carmichael doesn't like what he sees.
15:03You're not losing in any way.
15:05And this is my worry is consumers who aren't able to either understand or manage that situation,
15:12and they find themselves in a transaction that's going to come back to haunt them down the road.
15:17Do you see this as following the rules?
15:19I would challenge both of what those individuals said on the basis that they haven't provided honest information to the consumer.
15:27So why might salespeople break their rules?
15:31We meet a man on the inside.
15:33He's worked in sales and finance for a decade, knows about the pressures at dealerships.
15:39Just sell the car.
15:40Yeah, that's what their sales manager is going to want to know at the end of the day.
15:42You talk to this person, why didn't you sell them the car?
15:45We're hiding his identity because he still works in the industry.
15:49No dealership is going to turn down a deal.
15:52We're not ultimately their financial advisor.
15:55We'll give them enough information to make a decision,
15:58but we're not going to point out all the negatives, all the potential pitfalls.
16:01Not in your interest to tell people about the downsides of trade-ins.
16:05Correct.
16:06You may get a new car, but you may keep the old debt.
16:09Yeah, you're going to get a new term, you're going to get a new payment, and it goes forever, right?
16:14Do you think there should be definite rules that require a salesperson or a dealership
16:19to clearly explain the basics to a customer?
16:22Yes.
16:23At the very least, the basics of negative equity so that people are going into the transaction with open eyes.
16:29We bring that idea back to OMVIC, Ontario's regulator.
16:33In fact, I think you actually may have this document, but this type of document,
16:39which talks to issues around negative equity.
16:44Carmichael says he's putting the pamphlet into government offices across Ontario.
16:49We turn it into a poster.
16:51I like yours better.
16:52Okay.
16:53But you won't see it in the one place you might expect it.
16:57Why isn't something like that, of this size, in a dealership, in a place where people are actually buying a car?
17:02Well, it is brand new.
17:04Happy to do that.
17:06That makes sense.
17:07I like it.
17:08Yeah.
17:09I'd love to see that on every sales desk.
17:11But you could require it.
17:12Well, I don't know that dealers are going to go that far with it.
17:16But certainly for the consumer, absolutely, it's a good thing to have.
17:20But it isn't compulsory.
17:22Just hope you can find someone who can spell it out like this.
17:25You come bring that car back and companies want to change it, you're going to owe money on that car.
17:30Right?
17:31So you owe, like, say you owe $21,000, $22,000.
17:33Your car's worth $15,000.
17:34That $6,000 will go to the new car that you're financing.
17:37So then it adds up and adds up.
17:39So that's why I thought...
17:40This employee deserves employee of the year award.
17:43Exactly.
17:44Congratulations, Tim.
17:45So few, though, get that advice.
17:48Chantelle will be paying for years to come.
17:51I don't want to freak you out, but this has changed the early part of your life.
17:54Yep.
17:55And I looked into getting a house and they won't approve me because of how much I have on the car.
18:00A debt.
18:02So you can't basically do anything until it's paid down.
18:08How much time do you have left on this loan?
18:10About four and a half years.
18:12About four and a half years.
18:13What do the next four and a half years of your life look like?
18:15Definitely changed now.
18:18Basically, I have a baby on the way and...
18:21Congratulations.
18:23Can you work two jobs, 74 hours a week, for the next four and a half years?
18:27No.
18:28I won't be able to do that.
18:29How are you going to do it?
18:31I don't know yet.
18:32I'll have to figure it out.
18:34Meantime, we can't figure out her paperwork.
18:37There are a number of red flags that jump off the page at me right off the bat.
18:41Is this a breach?
18:42Is this illegal?
18:43It is.
18:44Searching for answers on your Marketplace.
18:48Sign up for our weekly newsletter at cbc.ca slash Marketplace.
18:56Gearing up for more Marketplace.
18:59We've been investigating long-term car loans.
19:02Nobody knows being who somebody is.
19:05We can trade in your vehicle at any time and upgrade you to any other car.
19:09Okay.
19:10Sounds like a deal.
19:11But salespeople aren't always up front about risk to car buyers.
19:15And they find themselves in a transaction that's going to come back to haunt them down the road.
19:20It happened to Chantal Matthews.
19:23With the two cars, it was about $50,000.
19:26$50,000.
19:27Yep.
19:28She owes that much because she traded in her unreliable car early.
19:34The money she still owed was added to her new purchase.
19:37But check out her paperwork.
19:39No mention of that debt or negative equity.
19:42Instead, there's additional retail value on her second car.
19:46As if she opted for features like fancy speakers or better seats.
19:50I bring that to the regulator.
19:53The rules say the paperwork should be clear.
19:56The mathematical gymnastics that appear on this page are astounding to me.
20:02This is anything but clear.
20:04In fact, when you did send this over to us yesterday, we tried to figure out what we could
20:11and had a terrible time trying to figure out exactly what the representative would do.
20:16And you guys are the experts in this.
20:17You understand all of this.
20:18That's the theory.
20:19There are a number of red flags that jump off the page at me right off the bat.
20:23That, in fact, is your negative equity.
20:26They're hiding it up on a line as additional retail value.
20:30So they're putting it in the value of the vehicle as opposed to showing the actual debt that's outstanding.
20:37Is this a breach?
20:38Is this illegal?
20:39It is.
20:40It's both.
20:41And this is something I'd like to have my people look into.
20:44They are.
20:45Concerned the dealership may have breached the ethical code and the law.
20:50Hid the negative equity, leaving it unclear just what Chantel is paying for.
20:56We are most concerned about consumers making educated decisions.
21:02There are concerns that people not get in over their head or get into long enough term loans
21:09that they're going to end up with significant debt down the road that they simply can't afford.
21:14So it would be $25.68.
21:17Chantel is chipping away halfway through her massive loan.
21:21Biggest regret?
21:22Biggest regret?
21:23Going into debt that much.
21:24Thinking that I could get out of it within the eight years.
21:28Why'd you want to talk about this?
21:30Just so no one else makes the same mistake I did.
21:33It's not about my car.
21:35It could be anyone.
21:36It could be any age.
21:37It could be your mom, your brother, your friend next door.
21:41They could have the same problem.
21:43And in fact there are lots of people.
21:45Lots of Canadians just like this.
21:47And they're just drowning in debt.
21:52Attention online shoppers.
21:54I almost only shop online.
21:56I look for the best deals.
21:57A marketplace test.
21:59On your marks.
22:00Get set.
22:01Search.
22:02Different shoppers.
22:03Different prices.
22:04For the same room.
22:06Oh my gosh.
22:08They're different on different browsers.
22:10The more information they have, the more they can prey upon your desires.
22:14A Black Friday special on your marketplace.
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