WEBVTT - Bloomberg Law Brief: Auto Defaults Soar (Audio)

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<v Speaker 1>Now it's time for our daily Bloomberg Law Brief, exploring

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<v Speaker 1>legal issues in the news and Today, Bloomberg Law host

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<v Speaker 1>During Grosso and Michael Best discussed the increasing number of

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<v Speaker 1>US auto loan defaults and the chances it could turn

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<v Speaker 1>into another sub prime loan crisis. They speak with Patricia McCoy, your,

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<v Speaker 1>professor at Boston College Law School, and Gary Peoples, a

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<v Speaker 1>professor at Syracuse University College of Law. Patricia, subprime car

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<v Speaker 1>loans have been around for a long time. Explain what's

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<v Speaker 1>been happening in the last eight years or so. Well,

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<v Speaker 1>they certainly have been around, and in the last last

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<v Speaker 1>eight years, UH Auto Lending UM became the new growth

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<v Speaker 1>area for subprime loans. UH mortgage lenders are basically not

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<v Speaker 1>willing to make subprime loans anymore, but UM car dealers

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<v Speaker 1>were very eager to expand their markets by selling cars

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<v Speaker 1>to weaker and weaker borrowers and lenders stepped in willing

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<v Speaker 1>to make loans to people who might have difficulty paying

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<v Speaker 1>back the purchase price as the car. Gary, are there

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<v Speaker 1>any legal restrictions here in terms of who can get

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<v Speaker 1>these kinds of loans when they buy a car, or

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<v Speaker 1>is it kind of a free for all. It's it's

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<v Speaker 1>pretty much a free for all. One of the interesting

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<v Speaker 1>things about god Frank is the one area that was

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<v Speaker 1>left out of regulation were auto dealers. And auto dealers

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<v Speaker 1>finance the vast majority of auto loans and then of

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<v Speaker 1>course sell them uh to to finance companies, and they

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<v Speaker 1>are specifically excluded from regulation and the god Frank so

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<v Speaker 1>your regulation would be looking at would then be up

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<v Speaker 1>to the state. And I, you know, I practiced in

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<v Speaker 1>New York and even the general New York Usury Statute

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<v Speaker 1>doesn't apply to most auto loans. Patricia, the name of

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<v Speaker 1>your book is the subprime viru is so with the

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<v Speaker 1>auto loans, where do we see the virus or the

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<v Speaker 1>cracks in the system. What's really interesting is we're seeing

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<v Speaker 1>a replay of the mortgage crisis in terms of the

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<v Speaker 1>dealers don't check whether the borrowers can uh have the

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<v Speaker 1>ability to repay. The lender makes the loan without checking

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<v Speaker 1>it in most cases here Santan Dare, and then the

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<v Speaker 1>lender sells on the loans, packages them for sale to

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<v Speaker 1>Wall Street. Investors are not checking and are buying this

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<v Speaker 1>stuff regardless of the elevated default risk. And as Patricia McCoy,

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<v Speaker 1>your professor at Boston College Law School, and Gary People

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<v Speaker 1>as a professor at Syracuse University College of Law, speaking

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<v Speaker 1>with Bloomberg Law host During Rosso and Michael Best. You

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<v Speaker 1>can listen to Bloomberg Law weekdays at one pm Wall

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