AUSTIN, Texas — I have been reporting on forced financing at Texas auto dealerships for two years. After seeing my coverage, state Sen. Royce West filed a bill to ban the practice.
It received bipartisan support and sailed through the Texas Senate, and was making progress in the House when time ran out for it to pass in this legislative session.
Forced financing will apparently remain a legal practice in Texas.
A quick refresher on forced financing
A quick refresher: Forced financing at the dealership really became a problem for many Texas auto buyers during the pandemic and even still today because supply has been low, so dealers have had more leverage with the relatively few vehicles for sale.
Some dealers have refused to accept cash payments or outside financing, like from a consumer’s bank or credit union. Instead, they insist that consumers use their preferred lenders, which allows the dealer to add on to the interest rate that their preferred bank is charging.
So, by forcing someone to finance with them, the dealer can also get a cut of the finance charges.
Since I first raised this issue two years ago and did a series of reports, it got the attention not only of Sen. West, but also state regulators with the Office of Consumer Credit Commissioner. They were concerned about the practice and asked people to report it.
Texas has more than 1,400 dealerships. Just since my reporting on this began, consumers all over this state have filed complaints about forced financing at about 100 dealerships. Some of those dealerships have been the subject of numerous forced financing complaints.
Not all dealerships refuse outside financing, though. But even those that have used the practice have been doing it legally, because there is no law against it -- yet.
At the outset, Senator West cautioned that it can sometimes take multiple legislative sessions for a bill like this to finally make it all the way through the legislature successfully.
A different kind of relief
But this all plays out as another kind of relief is happening. We're seeing phrases about auto inventory that we haven't seen in a long time.
Statements like "almost normal" and "pre-pandemic levels" of new cars for sale.
And fasten your seatbelt: one headline even predicting "discounts could be next."
Indeed, Cox Automotive just reported that the average manufacturer’s suggested retail price for a new vehicle in March fell below $47,000 for the first time since last December; and that auto buyers paid less than the sticker price.
They report that is the first time that's happened in 20 months.