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Texas Consumers Kept In Dark over Auto Loan Overcharges Because of Legislation Signed by Then-Texas Gov. Bush

April 6, 2004

Texas Consumers Kept In Dark over Auto Loan Overcharges Because of Legislation Signed by Then-Texas Gov. Bush

Consumer Group Calls for Texas Governor, Legislature to Repeal Law

AUSTIN, Texas – Two consumer groups today called on the Texas Legislature to repeal a unique law – passed under former Gov. George Bush – that blocks Texas consumers from recovering $6 billion in overcharges on car loans and allows dealers to keep kickbacks secret.

The 1999 law allows auto dealers to pocket kickbacks from lenders in exchange for inflating the interest rates on car loans, without disclosing the kickbacks to car buyers. Using court records and insider information from whistleblowers, consumer groups and attorneys have found overcharges ranging from hundreds of dollars to more than $15,000. These kickbacks have led to higher-priced auto loans for consumers, even when the consumers have good credit. The law makes Texas the only state in the nation to specifically permit non-disclosure of the dealer kickbacks from lenders.


While the scams are now making national headlines, most don’t know that Lt. Governor Rick Perry helped to push this last-minute “stealth” legislation (76 (R)HB 2180- by Sen. Sibley, Rep. Averitt) through the Legislature, and then-Texas Gov. George Bush signed it. Public Citizen and Consumers for Auto Reliability and Safety (CARS) are now calling on the Legislature to repeal the law during the upcoming special session on school finance.

“This legislation is a billion dollar bonus to car dealers, many of whom have contributed heavily to Bush’s campaign,” said Tom “Smitty” Smith, director of Public Citizen’s Texas office. “It should be repealed immediately. Lawmakers should ensure that there is equality and openness in our lending system. The current law favors the auto dealers, not Texas consumers.”

Jack McGehee, a Houston attorney, filed a class action lawsuit in 1997 case on behalf of two Athens-area residents who purchased cars from the Peltier dealership, with auto sales financing arranged through Bank of America. The case was dismissed following signing of the legislation by Bush.

“Over 77,000 Texans were charged more than they should have been in excess credit costs due to this secret kickback scheme approved by Governor Bush,” McGehee said. “One LaRue resident who was a plaintiff in the suit said he was charged 17.9 percent interest for a loan on a Nissan pickup truck when the bank had approved him for a 11.15 percent loan. The lawsuit accused Bank of America of paying the dealer a $2,724 ‘illegal kickback.’ Because the loan paperwork had the bank’s name on it, the man was led to believe it was the best deal he could get from the bank. We believe there are more than a billion dollars in similar damages to Texas consumers “

According to McGehee, Texas Sen. David Sibley, R-Waco, introduced the amendment at the request of Lt. Governor Perry, who said it was just a “clean-up” amendment.

Harriet Miers’ law firm represented the defendants of the litigation, which included auto dealers in Texas. At the time, she was president of Locke, Purnell, Rain & Harrell, where she worked from 1972 until 1999. Currently Miers is assistant to President Bush and his staff secretary.

A recent report from the Consumer Federation of America, National Council of La Raza, and Rainbow/PUSH details that this widely practiced markup of auto finance costs American consumers up to $1 billion dollars annually. The subjective nature of these markups, according to the report, is a well-documented trend of discrimination against African-American and Hispanic borrowers.

Public Citizen also issued a report late last year detailing the many ways consumers can be ripped off when they buy a car. The group launched a Web site for people to send stories of rip-offs. Since Public Citizen launched the site, www.dealerscam.org, more than 55,000 people have visited the page. The consumers reported a variety of scams that they have been subject to. Of the more than 300 consumers who financed their purchases through dealerships, almost a third of them had the terms of their loan altered without their consent.

“Texas car buyers certainly have better things to do with their money than make an unintended gift to the dealer and lender,” said Rosemary Shahan, President of CARS. She pointed out that lawmakers in California, New York, and Illinois are working to enact measures to curb the kickbacks or at least require full disclosure. Members of Congress have requested Congressional hearings on predatory and discriminatory auto lending practices.


76 (R)HB 2180- by Sen. Sibley, Rep. Averitt

Sec. 348.301. AUTHORITY TO ACQUIRE. A person may acquire a retail installment contract or an outstanding balance under a contract from another person on the terms, including the price, to which they agree. Notwithstanding any other applicable law of this state, no person acquiring or assigning a retail installment contract, or any balance under a contract, has any duty to disclose to any other person the terms on which a contract or balance under a contract is acquired, including any discount or difference between the rates, charges, or balance under the contract and the rates, charges, or balance acquired.


SECTION 3.01. (a) Except as provided by Subsections (b), ©, and (d), this Act takes effect September 1, 1999.

(b) Article 1 of this Act takes effect only if the Act of the 76th Legislature, Regular Session, 1999, relating to nonsubstantive additions and corrections in enacted codes does not take effect.

(c ) Article 2 of this Act takes effect only if the Act of the 76th Legislature, Regular Session, 1999, relating to nonsubstantive additions and corrections in enacted codes takes effect.

The changes made by Section 2.20 of this Act take effect immediately, and shall apply to any civil action pending on or after the date of enactment.



For more information go to www.autodealerscam.org or www.carconsumers.com.

  • To view entire chart of the top 100 dealer markups in Texas from the GMAC national class action case that was recently settled: National Consumer Law Center, at www.nclc.org, under GMAC on the home page.
  • Consumer Federation of America report- “The Hidden Markup of Auto Loans”- click here.